June Carbone Property II Spring 2012
Complete Outline for the Course
The Contract of Sale:
1) Statute of Frauds:
· Requires that the K for the sale of land be in writing, signed by the party to be charged thereby.
o If the K is not signed, it is not enforceable.
· Kind of Writing:
o Can be a formal K or can be an informal memorandum; just needs both signatures.
§ Negotiations:
· Informal negotiations are not fully agreed upon until both parties intend to be bound and a formal K is signed.
· Essential Terms:
o Identification of the parties
o Description of the property
o Terms and conditions (price)
§ Price: if the price has been agreed upon, it must be set forth. Failure to put it in a memorandum makes the K unenforceable. If no price has been set forth, the court may imply a reasonable price from the circumstances.
· Oral Contracts
o Part Performance: part performance is an equitable doctrine that allows a court of equity, under certain circumstances, to specifically enforce an oral contract for the sale of an interest in land. If a buyer or seller sues at law for damages, the doctrine of part performance is not applicable in most states; the doctrine is applicable only in a suit in equity for specific performance.
§ Acts of “unequivocal reference to a contract”
· What acts constitute part performance, taking the K out of the SOF and making it enforceable, vary considerably from state to state. But most courts require acts of equivocal reference to a contract, i.e, acts done by the parties that make sense only as having been done pursuant to a contract. Thus, if the buyer (i) pays all or part of the purchase price, and (ii) enters into possession, and (iii) makes improvements, the K is enforceable, because the court assumes the buyer would not do these acts without a K.
1. Variations on Part Performance: In some states, the K is enforceable if the buyer merely takes possession under circumstances referable to a K. This is known as the English rule. Other states require that the buyer also make payments or improvements. Still other states require the buyer to go further and show, in addition to these acts of part performance, irreparable injury if the K is not enforced. Usually the buyer’s making valuable improvements that cannot be compensated in money shows this.
2. Injurious Reliance Theory: This is Restatement 129, not 90. A K may be specifically enforced if the party seeking enforcement proves the contract and, in reasonable reliance on the K, “has so changed his position that injustice can be avoided only by specific enforcement.” This position is in line with the modern trend to relax the Statute of Frauds.
· But the requirement of unequivocal acts probably survives in most states.
2) Marketable Title
· Implied in Contract: unless there is a provision in a K of sale to the contrary, it is implied that the seller must furnish the buyer with good and marketable title at closing.
a. This implication will be made even though the K calls for a conveyance by quitclaim deed (which makes no warranties of title).
i. The reason is that the K calls for a conveyance of land, and the seller cannot convey land unless he has title to it.
b. Contract Provisions: If the K requires the seller to provide the buyer with an insurable title, only a title insured by a title insurance company and not a marketable title is required. If the K calls for a “good record title,” the seller must offer a marketable title based on recorded documents alone, not upon adverse possession.
· Marketable Title Defined: A title free from doubt that a reasonably prudent purchaser would accept. A perfect title is not required; just one that there is no reasonable probability that the buyer will be subjected to a lawsuit.
o Good Record Title: a seller can show marketable title by producing a good record title or, in many states, by showing title by adverse possession. Good record title means, generally speaking, that there was a conveyance (usually many years ago) by a sovereign state then holding ownership, and thereafter there are, on record, transgers of title from the original grantee to the seller. In addition, good record title means that there are no recorded encumbrances, such as mortgages and easements, on the property. A person who has a good record title has an unencumbered fee simple, provable from public records.
o Adverse Possession: Unless marketable title “of record” is called for, marketable title can be based on adverse possession. AP must be clearly proven. Seller must provide written evidence or other proof admissible in court that the buyer can use to defend any lawsuit challenging title. In some states AP cannot be used for marketable title unless a quiet title has eliminated the record owner’s rights.
· Defects in Title
o Defect in record chain: Title may be unmarketable because if a defect in some prior instrument constituting part of the chain of title.
§ Ex: deed might not be acknowledged before a notary, or land descriptions in the chain may not match, or an old mortgage is not discharged on the records.
o Private encumbrances: marketable title means an unencumbered fee simple. Mortgages, liens, covenants, and easements make title unmarketable unless the buyer waives them. A mortgage is not an encumbrance if the seller pays it off before closing or at closing with the proceeds from the sale.
§ Easements: an easement that lessens the value of the property makes the title unmarketable. An easement that benefits the property does not necessarily make the title unmarketable. Although a majority holds that an open and visible easement for the benefit of the property known to the buyer before he makes the contract is not an encumbrance. Under the minority view, much depends on the expectations of the buyer, including what future use he plans to make of the property.
§ Covenants: Restrictions on the use of the property, imposed by a private covenant, makes the title unmarketable. It is assumed that the buyer wants to use the property for any purpose permitted by zoning regulations, and not merely continue its present use. On the other hand, if the contract expressly states that the property has been purchased for a particular use, and such use is permitted by the private covenants, title may be held marketable.
§ Express Waiver: The contract of sale may enumerate the encumbrances and the buyer may waive them. Or the contract may provide that the seller shall furnish the buyer with a list of encumbrances prior to the closing, and failure of the buyer to disapprove within a few days after receipt will be deemed a waiver. However, a waiver of an encumbrance in the K of sale is not a waiver of a violation of the encumbrance when the buyer does not know of the violation. Thus, if in the K the buyer waives building restrictions, and it is then found that the building on the property violates the restrictions, the buyer can rescind. (Lohmeyer v. Bower)
o Zoning Restrictions: Zoning laws and subdivision restrictions generally do not make the title unmarketable. They are not considered encumbrances. If the zoning restrictions are imposed after the K is signed, and these restrictions will materially interfere with or frustrate the buyer’s contemplated use of
hed by the existence of public land use controls, such as zoning ordinances and building codes. Moreover, it is not breached by a latent violation of a public land use control, which the public authorities may never discover or enforce. The buyer assumes the burden of complying with public controls (Frimberger v. Anzellotti).
c. When Breach Occurs: At the time of conveyance, or not at all. Statute of limitation begins to run at the time of conveyance, and if it runs, no suit can be brought for the breach then.
d. Whether the covenant “runs”: If a covenant for title can be enforced against the covenantor by the transferee of the covenantee, it is said to “run with the land.” The majority rule is that present covenants do not run with the land and cannot be enforced by remote grantees. At the time of breach, the covenant becomes a chose in action (personal right to sue for breach) in the grantee and the chose in action is not impliedly assigned.
2) Future Covenants: Quiet enjoyment, warranty, and further assurances.
a. What constitutes breach: A covenant of quiet enjoyment or warranty is breached only when the covenantee is evicted or disturbed in possession. The mere existence of a superior title does not constitute a breach of the covenant, and the grantee has no cause of action if she is not disturbed in some way (Brown v. Lober).
i. Constructive Eviction: Actual eviction is not necessary for a breach of a future covenant. Constructive eviction will suffice. Example: The grantee is constructively evicted if she must buy the superior title to prevent eviction or is enjoined from using the property in violation of a restrictive covenant on the property. If the grantee’s right of a paramount owner of some interest in the property interferes with possession, the grantee is constructively evicted.
ii. Defending lawsuits: A covenantor has the duty of defending against lawful superior claims, but he has no duty to defend title against a wrongful claim by a third party. The burden is thus put on the grantee to defend all claims; she can recover against the covenantor only if she loses.
b. When breach occurs: A future covenant is not breached, and the statute of limitations does not begin to run, until the covenantee is disturbed in possession. If after the statute of limitations has run on present covenants and the grantee then discovers some defect in the title, the grantee must wait until eviction to sue.
c. Whether a covenant runs: A future covenant runs with the land if there is privity of estate between the original grantor-covenenantor and the remote grantee. In this context, “privity of estate” means that the covenantor conveyed either title or possession to his grantee, who conveyed it to the remote grantee. The covenant attaches to the fee simple estate or the possessory estate and runs with it to subsequent grantees.
