Property II Watson Spring 2016
I. Contracts for the Sale of Land
Rules regarding contracts for the sale of land:
Must set forth essential terms
The parties
The subject matter
Intent to sell the land
Promises by the parties
Signature of party charged (defendant)
Vague terms may be made clear by extrinsic evidence
Non-essential terms include:
Date and time of closing
Type of deed to be used
Acknowledgement by a notary
Signature of a witness
Statute of Frauds and Part Performance
Statute of frauds applies to oral modifications
Part performance exception: must prove the making of the agreement and its part performance by clear and convincing evidence.
Acts of performance sufficient to negate statute of frauds requirement:
Payment of part or all of the purchase
Going into possession of the realty
Making substantial improvements
Oral rescission permissible despite late of writing because not making a contract
Reliance/Estoppel Theory of Part Performance: A contract for the sale of land is enforceable notwithstanding a lack of writing if it is established that the party seeking enforcement, in reasonable reliance of the contract and on continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific enforcement
Evidentiary Theory of Part Performance: Statute of frauds has an evidentiary role, so if you can prove there was a contract, it may be enforced.
Sellers may use the doctrine of part performance if the court adopts the evidentiary theory, but not the reliance theory.
Key terms of a loan:
Length of loan
Interest rate
Secured or unsecured
Statute of frauds applies to:
Oral contracts
Oral modifications of price
Statute of frauds does not apply to:
Oral rescissions
Oral modifications of time of performance
Remedies and Real Estate Contracts
English Rule: Restitution only (i.e. get deposit back) unless guilty of fraud or deceit, seller willfully refuses to convey, or breach not related to title (1/2 states follow)
American Rule: “benefit for bargain” or compensatory damages (i.e. difference between the contract price and the fair market value of the property at time of breach (or time of resale) and reasonably foreseeable consequential damages
“loss of bargain” and damages flowing directly from breach (i.e. consequential damages)
Specific Performance (land considered unique)
No damages for expenses connected with resale (e.g. commission) because not reasonably foreseeable.
Seller can reserve the right to choose from liquidated damages, actual damages, or specific performance
But if don’t reserve that right, a liquidated damages clause bars actual damages, but not specific performance
Vendee lien: A lien that arises by operation of law to help the buyer get his deposit back from a seller who breached and kept the deposit. The lien is on the seller’s land.
Vendor lien: A lien that arises by operation of law if the buyer gets title, moves in, but fails to pay the seller. The lien is on the buyer’s land.
Liquidated damages are enforceable if
(1) Injury is difficult to estimate
(2) Parties intend to liquidate (pre-set) their damages in advance
(3)The sum is a reasonable estimate of loss
Different views: at time of breach, at time of contract, and both.
Some courts say that they are unenforceable even if it was reasonable at the time of the contract if there are no actual damages
Time of Performance and Tender
n the deed, then it is marketable title
An adverse possessor cannot deliver marketable title because although he has legal title, it is not on record
Ordinance violations (e.g. flood-prone basement) usually do NOT render title unmarketable because not a title issue (economic marketability vs. legally recognized rights in title)
Discovery of the defect/encumbrance does not render the deal “off”
Seller must have a chance to sure
Also, buyer may “accept” the defect
Duty to deliver marketable title is a contractual duty
REMEDY: rescision
Equitable Conversion
A theoretical change of property from realty to personalty, or vise versa, in order that the intention of the parties, in the case of a contract of sale, or the directions of the testator, may be given effect
When vendee contracts to buy and vendor to sell, though legal title has not passed, in equity the vendee becomes owner of the land
If the contract is one where the seller would be subject to a decree of specific performance, then the buyer has equitable title
Default (majority) Rule: equitable title passes to the buyer when there is an enforceable contract
Prior to closing—i.e. executor period; before legal title has passed
Applies to both installment land contracts and earnest money contracts
Death of the Contracting Party
The seller’s interest descends as personal property and the buyer’s interest descends as realty
