Watson- Property II-Fall 2011
I. Chapter 1- Contracts for the Sale of Land
A. Statute of Frauds-Johnson v. Curtis
1. Must be in writing and have:
a. Parties
b. Subject matter
c. Intent to sell the land
d. Consideration/price
e. Promises by the parties
f. Signature of party charged
2. Vague terms may be made clear by extrinsic evidence (Parole Evidence Rule)
3. Rules for rescission and modification
a. Oral rescission permissible despite lack of writing
b. Oral modifications must comply with statute of frauds
4. Exceptions to the SoF
a. Doctrine of Part Performance-(Evidentiary Rationale) Test
i. take possession of the property and
ii. either
1. pay part or all of the purchase price or
2. make improvements to the property
b. Estoppel-
i. one party has been induced by the other to substantially change position in justifiable reliance on an oral contract and
ii. serious or irreparable injury would result from refusing enforcement of the contract
5. Seller sues to use partial performance, it’s OK if seller relied on the buyer that they were going to keep the house
B. Remedies for Breach of Contract: Damages
1. Measure of damages = the contract price – FMV of the property at the time of the breach
2. Seller cannot usually recover if the property value is higher than the contract price because they can sell the property for more than the buyer would have bought it for.
3. In many states the seller is not liable for such damages if the breach was caused by good faith inability to convey marketable title
4. When full loss of bargain damages are not available, the non-breaching party may receive incidental damages—reimbursement of out-of-pocket expenses incurred in reliance on the contract. (American Rule- Benefit of the Bargain)
5. English Rule- cannot get compensatory damages just restitution to restore the person to where they were BEFORE the bargain
C. Remedies for Breach of Contract: Specific Performance
1. A specific performance decree mandates that the breaching party perform the sales contract
2. Because specific performance is an equitable remedy, it is not always available even if a breach has occurred
3. It will be awarded only if the usual remedy of money damages is inadequate
4. In addition, the court has broad discretion in deciding whether to grant this remedy and may refuse it, for example, if this would cause unusual hardship to the breaching party
5. Looks at factors including the uniqueness of the location
D. Liquidated Damages
1. Earnest Money Deposit- In the event of a breach the seller retains the money as liquidated damages
2. TEST
i. Is the liquidated damages clause enforceable?
1. NOT ENFORCEABLE IF: contains a penalty
2. Injury must be difficult to estimate
3. Parties must intend amount to be a damage award not a penalty
4. Sum must be reasonable estimate of loss
ii. The terms of the liquidated damages provision and other remedies
E. Time of Performance and Tender
1. “Time is of the essence” clause: the innocent party is entitled to rescission, damages or (if seller) retention of the earnest money deposit; INNOCENT PARTY MUST BE READY TO PERFORM (this is why they will show up even though there isn’t going to be a closing)
i. Waiver- if they continue to prepare to close after there was a breach
2. If there is no “time is of the essence” clause- reasonable delays do not constitute a breach of
er of the property who needs the loan
iii. Mortgagee- lender who takes the real property as a security
iv. Amortization- application of part or all of payments by a borrower to reduce the outstanding principal balance of the loan. Monthly payments are a mix of interest and principal
v. Balloon loan- pay the interest up front in payments and pay the principal off in a lump sum at the end
2. Financing Methods-
i. Cash Sale- Doesn’t matter where the buyer gets the money from as long as the seller gets “cash”, it is considered a cash sale
ii. Assumption of seller’s mortgage- buyer pays seller the equity they have in the property and then assumes the prior mortgage. Assumption is an agreement by which a grantee of mortgaged real estate becomes personally liable on the mortgage debt
1. If new buyer defaults the lender can go after 3 places: buyer, seller, foreclosure sale
iii. Subject to Seller’s Mortgage- NOT PERSONALLY LIABLE FOR THE MORTGAGE
iv. Seller Financing- if seller owes nothing on the property they can be the lender that holds the house as security in case a default
v. Combination- can make payments to seller and a bank to pay of the loans
vi. Wrap-Around Financing- buyer makes monthly payments to seller and seller makes monthly payments to mortgagee
1. Doesn’t work if there is a due-on-sale clause because the debt is accelerated when sellers sell the property
