Real Property II
Final Exam Study Guide
Contracts for the Sale of Land:
1. Statute of Frauds – the contract or “some memorandum or note” must be in writing for the sale of land
· Can be a check, letter, set of escrow instructions, or a deed may suffice
· If no sufficient writing, neither party can enforce the contract against the other – at law or equity; contract for sale is just unenforceable, not void (p.126 N&W)
· Contract must contain: names of the parties, identification of the land, some words of intent to sell the land, promises of the parties, signature of the party to be charged (person resisting the enforcement of the contract)
– Some jurisdictions require price if one was agreed to, terms of financing
· Oral rescission ok, oral modifications not ok – original K still in effect; oral modifications may be enforced by estoppel (detrimental reliance)
· Earnest Money – not required for contract to be valid; but often given to show the seller that the buyer is serious
2. Doctrine of Part Performance – a judicially created exception to the Statute, which permits the courts to enforce a contract in equity even though there is no sufficient writing to satisfy the Statute of Frauds.
· Is a substitute for a writing – still need offer, acceptance, consideration, and other elements of a contract which can be proven orally
· Four states do not recognize: KY, MS, TN, NC
· Three Types of Acts (by the purchaser) recognized by the courts to negate the Statute of Frauds:
i. Payment of all or a substantial part of the purchase price
ii. Taking possession of the property
iii. Making substantial improvements on the land
– Most courts require a combination of at least 2 acts, some require all 3; few recognize possession or improvements alone as sufficient, but none accept payment alone.
– Some courts have accepted other acts of reliance to enforce oral contracts (p.130 N&W)
· Two Rationales for Part Performance –
i. Evidentiary Rationale – the acts provide evidence that a contract exists – they cannot be explained on any other grounds other than the existence of a contract (if court adopts this approach would likely allow both seller and purchaser to use part performance doctrine – where acts are evidence of the contract’s existence)
ii. Estoppel – for fairness on the part of the party that relied on the acts of the other party but cannot prove because of a lack of a writing; performing acts makes non-enforcement unfair/unjust because of one parties detrimental reliance (if court adopts this approach – would likely only allow the purchaser to use this doctrine because the acts only show injury to the purchaser)
3. Remedies for Breach of Contract –
· Actual Damages –
– Loss of Bargain damages is the difference between the contract price and the market value of the land on the date of breach (buyer gets damages if price rises above contract price; seller gets damages if price falls below contract price)
– Two Rules Where Seller Defaults due to title failure –
i. English Rule – Limits a buyer’s recovery to the return of his deposit unless the seller willfully refuses to convey or is guilty of fraud or deceit (restitution)
ii. American Rule – permits a buyer to obtain benefit of the bargain damages irrespective of the nature of the reasons for the seller’s default
(expands to compensatory and consequential damages)
· Specific Performance – makes parties go through with the contract; rationale – because property is unique; not available if damages are available and adequate (like in a case with many condos with same exact layout)
– Not available where land has been sold to third party, seller doesn’t have title, k excludes sp as a remedy, purchaser was only buying property to resell it to third party (b/c damages could be calculated)
*Can get damages and sp – where there is less land than contracted for – get land (sp) and damages in the amount to buy the rest of the land from someone else; can also get where a long time passed between closing and sp – purchaser is deprived of occupancy, had to pay rent somewhere else, etc (these damages will be offset by savings in interest, tax, maintenance)
· Liquidated Damages – Clause to set damages in the event of breach; can be the earnest money amount or deposit
– Court will look to reasonableness (at date of contract and/or date of breach called “second look” [OH] depending on the court) to determine if amount set is valid or would constitute a penalty/forfeiture. Some have adopted % that is reasonable – like 10% or less of purchase price.
· Other remedies: vendor’s lien, vendee’s lien, restitution (refund)
4. Time of Performance and Tender
· If timing is important, parties must state that time is of the essence in some language (most likely in contract)
· Is possible to unilaterally make time of the essence BUT the other party must have (1) sufficient notice and (2) a reasonable amount of time to comply
· If time is of the essence – late tender is a total breach and the innocent/non-late party is entitled to rescission, damages, or if seller- retention of the earnest money. The innocent party must be ready/able to perform (Tender).
– if neither party tenders, both are discharged
– either party can waive the time is of the essence provision by accepting
late performance or orally stating that it will be acceptable.
· If time is NOT of the essence – reasonable delays do not constitute a breach of contract; however, the late party may be liable for ‘interim’ damages resulting from the delay
– Delays of 30 to 90 days are commonly considered reasonable
5. Title to be Conveyed
· Marketable Title – is one which is free of all reasonable risk of attack; not absolutely perfect but only minor defects if any.
– Title need not be marketable until the date fixed for the transfer of legal
– Merger – right of the purchaser to object to defects which make title
unmarketable lasts only until a deed is delivered and accepted. Once this
happens, the k’s covenants of title are “merged” into the deed and can no
longer be the basis of legal action.
· Insurable Title – a title that a title company is willing to issue a policy for – stating that the land is as stated in the report; little risk here, but more than marketable title
· Title Defects – flaws in the chain of ownership, encumbrances (leases, M, easements, liens, etc.), actions depriving the vendor of title (like adverse possession), reasonable threat of litigation.
– if easement is visible, physical, or beneficial – more likely cannot be
objected to by the buyer
– Seller can cure by fixing the defect within a reasonable amount of time if
before closing or a reasonable amount of time after.
– Buyer can also accept the property i
· A deed may not create an interest in a third party by way of an exception(holding back of interest that already exists) or reservation(creating and leaving an interest for a new interest). Can only go to grantor.
2. Land Descriptions – defines the boundaries on the earth’s surface which represent the horizontal limits of the parcel.
· Metes and Bounds – every line of the parcel’s boundaries is described; lines are described by referencing natural or artificial monuments or adjoining land.
· Government Survey System – principal meridians run north/south, base lines run east/west; divides into squares called “townships”; townships are divided into 36 “sections” which are about 1 mile square. Each section contains 640 acres.
· Plat – map which meets certain standards of format and accuracy and is legally approved by some local government agency; nearly all modern subdivisions are described by plat.
3. Delivery and Escrows
· Deed Delivery – is a question of intent; need present intent to convey the land
– Know that there is a difference in a present intent to convey a future interest and conveying an interest at sometime in the future
· Once delivered – doesn’t matter what happens to the deed
· Best evidence of delivery – physical transfer of deed; each new transfer needs a new deed
· Deed is not equivalent to a will; deed will be invalid because there is not present intent to transfer – they don’t intend to transfer until grantor’s death; HOWEVER – if allowed there are Transfer-on-death deeds that avoid probate and do not become effective until a person dies
· Grantor cannot impose an oral condition on the delivery of a deed; most courts hold that the deed is valid and disregard the condition.
· Deed can convey a future interest (with a condition as long as in writing)
· Delivery is complete upon acceptance; is presumed if the conveyance is beneficial to the grantee
· Escrow – an instrument, like a deed, is deposited with a third party/custodian with instructions that it should be delivered to the grantee on the occurrence of some future condition.
– If the grantee keeps a right to recall, there is no present intent to transfer
– Title transfers as soon as it is given to the third party
– Relation Back – when conditions of escrow are fulfilled and the deed is delivered to the grantee, the delivery “relates back” to the time the deed was handed to the custodian.
· Defective Deeds :
– Void v. Voidable:
§ Defects rendering deeds void – forgery, lack of delivery, fraud in the execution; a void deed can be set aside even as against a BFP, so grantor keeps title
Fraud in the execution/fact – grantor executes the deed but doesn’t realize he signed a deed- was told it was