Property II (Real Estate Transfer, Finance, and Development)
University of Dayton School of Law—Spring 2010
Professor James Durham
1) Ch 1: CONTRACTS FOR THE SALE OF LAND
a) Five Steps of Real Estate Transactions
i) Execution of K (brokers agreement, sale)
ii) Inspections of Prop and seller’s title
iii) Buyer financing
b) Real Estate Brokers
i) Broker Commissions
(1) Drake v. Hosley
(a) Issue: Is broker entitled to commission even if the seller sells the property to another buyer?
(i) Holding: Yes. If the broker fulfils the terms of a written K, his commission is earned.
1. this is the CL rule and the majority rule
(b) Rule: The commission is earned when the seller accepts the buyer: the seller is then estopped from saying that the buyer isn’t suitable. At that point, the seller becomes obligated to pay the commission.
(c) Dobbs Rule: the agent can’t collect unless there is closing (this can be contracted around)
(i) ultimately Alaska adopts Dobbs Rule, but in this case, Drake was the reason the deal fell through
ii) Duty to Disclose
(1) Easton v. Strassburger
(a) Eastons bought land – shortly after land movement cause a lot of damage – reduced FMV from 184K to 20K
(i) Ct held broker liable b/c there were big red flags but he didn’t inspect
(b) Broker has duty to disclose material facts/defects known to the broker but not known/discoverable to the buyer
(i) maj = not liable if they had no actual knowledge of the defect
c) The Statute of Frauds and Part Performance
i) Requirement of Writing
(1) Statute requires that the K or “some memorandum or note” be in writing
(a) admission of K’s existence could be satisfactory w/o a writing
(b) multiple pieces, taken together could show a writing as long as all of the elements are present
(c) Lack of Writing
(i) the K is unenforceable – not void
(ii) neither party can enforce the K against the other either at law or equity unless:
1. if both parties fully perform, neither can claim the K is null
2. partial performance by either party may make the K enforceable in equity
3. rescission and restitution may be obtained
4. tortious interference w/ K is actionable even w/o writing
(2) Writing does not necessarily mean a K; no law actually says a K is required, but they are encouraged:
(a) to ensure the deal doesn’t fall through
(b) often include commission clauses
(3) Johnston v. Curtis
(a) Part performance is an exception to the SoF
(b) Would Johnson’s have been able to get their $500 back if there had not been a valid K under the SoF?
(i) Yes = restitution
1. Parties will be able to regain anything they paid under the perceived K
(c) If the Curtiss’ breach – it’s harder for the Johnston’s to assert the part performance b/c they can’t meet the evidentiary burden.
(d) Even the making of improvements doesn’t establish the terms of the K – you still have to convince the ct and you need more than the testimony of the party asserting the K.
(e) Material modifications must be in writing b/c material facts must also be in writing
(a) Rosenfeld v. Zerneck
(i) Issue: Is the typed signature at the bottom of an email satisfactory for the requirement that a writing be subscribed?
(ii) Holding: Yes. The sender’s act of typing his name at the bottom of the mail manifested his intention to authenticate the transmission for the SoF.
(iii) There must be intent to authenticate the communication to satisfy the SoF
1. The E-sign Statute pre-empts state SoF
a. in this case the ct overlooked the E-sign statute, but it is clear that this statute would have produced a meeting of the minds
b. same result
(iv) So why doesn’t the ct enforce the K?
1. missing essential terms
2. no talk of deposit or what would have enforced this
(b) The K must be signed by the party to be charged (typically buyer and seller, but not necessarily)
(5) The writing must contain:
(a) The parties
(b) Subject matter
(i) most cts require the price and details of payment/fincancing
(ii) most cts say street address is usually adequate to id the property
(iii) if the seller is going to finance part of the price – those terms must be in the K
(c) Words indicating Intent to sell
ii) Modifications and Rescissions
(1) an oral modification of K falls w/in SoF and must be supported by writing, but an oral rescission does not
(a) an oral modification w/o writing will be ignored by the ct, leaving the original K in tact
(b) part performance of the modified K may take modification out of the SoF and make it binding
(2) Estoppel – Reliance Theory
(a) if one party detrimentally relies on the modification, the other party may be estopped from enforcing the original K
(3) Remedies in the Absence of Writing
(a) even if SoF is not satisfied, the buyer can still rescind and recover earnest money
iii) Part Performance Doctrine
(1) Judicially created exception to the SoF which permits a ct to enforce a K in equity even though there is no sufficient writing to satisfy the SoF
(a) substitute for writing – it is still necessary to prove elms of a K
(b) maj = equitable doctrine – specific performance is the relief
(i) min = however, a small minority of cts also use it as a legal doctrine to allow recovery of damages
(ii) standard of proof = clear and convincing evidence
(2) What acts constitute part performance?
(a) payment of all or part of the purchase price
(b) taking possession
(c) making substantial improvements
(3) Which acts are required?
(a) most cts require a combo of at least 2 of the acts and a few cts require all 3
(b) No cts find payment alone as sufficient
(c) actions must evidence what the agreement of the parties was
(4) Theories of Part Performance
(a) Reliance (Promissory Estoppel)
(i) Restatement 2d K § 129: Action in Reliance; Specific Performance
1. A K may be specifically enforced, n/w/s failure to comply w/ SoF if it is established that the party seeking enforcement reasonably relied on the K and on the continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific enforcement.
2. Focuses on unfairness of enforcing the SoF in some circumstances
(b) Evidentiary Theory
(i) the SoF mainly has an evidentiary role – writing is demanded b/c it is too easy for one of the parties to invent a K where none existed.
(c) Mixing the Theories
(i) many cts mix the 2 theories or count them as elements of the entire part performance doctrine.
(5) Who Can Claim Part Performance?
(a) the 3 acts of part performance can only be performed by a buyer
(i) if the ct uses the evidentiary theory or takes a broad promissory estoppel approach – a seller may be able to use the doctrine
d) Remedies and Real Estate Contracts
(1) Buyer’s Remedies
(a) specific performance
(i) forced conveyance to the buyer who will pay full price
1. loss of bargain damages
a. difference b/t the K price and the market value at breach
i. buyer can obtain nothing if the property is worth less than the K price
2. American Rule (half states)
a. The buyer is entitled to the difference b/t the K price and market value on date performance is due
i. Permits a buyer to obtain benefit of the bargain damages irrespective of the nature of the reasons for the seller’s breach
3. English Rule (half states)
a. buyer is entitled only to be restored to his original position
i. Limits buyer’s recovery to the return of his deposit or any other money paid to the seller unless the seller willfully refuses to convey or is guilty of fraud or deceit
(c) Vendor’s Lien
(i) if buyer breaches after the seller has transferred title to her, there is a lien to secure payment of the remaining purchase price.
1. a further transfer to a good-faith BFP will defeat the lien
2. aid to specific enforcement of the K
(i) buyer may rescind K and recover down payment/earnest money
(2) Seller’s Remedies
(a) specific performance
(i) as long as there is no substantial and material defect in the seller’s title, seller can enforce K w/ an abatement of purchase price to compensate buyer for any deficiency
(i) loss of bargain damages
(ii) difference b/t the K price and the market value at breach
1. seller can obtain nothing if the property value is higher than the K price
(c) Liquidated Damages
(i) Provided for in the K – parties intended to agree in advance to damages that might arise from the breach
1. liquidated damages are the parties’ best guess to avoid risk of market changes
2. Seller gets to keep the down payment if buyer breaches (many cts allow this even if no liquidated damages clause)
(ii) The liquidated damages must be reasonable and related to the damages which might be sustained
1. If the down payment amount is reason
(i) even if late by a matter of minutes = breach
(ii) if the K does not stipulate that time is of the essence, cts assume it is not of the essence
(iii) You have to make it clear that time is of the essence – you need the magic words
(b) If time IS of the essence:
(i) If the party is late at all, the breach is material and the other party’s duty to perform is discharged
(ii) the late party has no right to enforce the K and the other party has the right to loss of bargain damages.
(iii) a unilateral notice that time is of the essence is binding as long as the time is reasonable
(iv) either party can waive the timely performance stipulation
1. a waiver may also be inferred from the circumstances/actions
(v) neither party can consider the other in breach w/o first tendering their own performance
(vi) Tender may be excused when:
1. The other party anticipatorily repudiates
2. When repudiation is apparent
3. Impossibility of performance by the other party
4. Mutual failure to tender relieves both parties of their duties
(c) If time is NOT of the essence:
(i) A reasonably late tender of performance is a breach – but it is not a material breach
(ii) One who commits a immaterial breach must pay interim damages caused by the breach but they can still enforce the K (specific performance) or rescind and recover earnest money
1. breacher can’t get legal relief of damages but they can get equitable relief
(iii) If tender is unreasonably late the other party’s duty is discharged
1. 30-90 days is usually considered reasonable by the courts
(d) You should always include a time is of the essence clause if the closing is in the future
(e) Without a time is of the essence clause if one party waives the right to a date then it cannot complain later.
(f) The Millers could have signed the unilateral time is of the essence date. K could have explained why the date is important to the seller. Explain why it’s important. Make your case.
ii) Miller v. Almquist (p. 65)
(1) Issue: Is one party’s effort to make time of the essence enforceable if the time given is unreasonably short?
(2) Holding: No. In granting an adjournment the other party may unilaterally make time of the essence – but it is only effective if the time period is reasonable and they give specificity of notice.
(3) When not specified that time is of the essence – each party is entitled to a reasonable adjournment of the closing date.
(4) Reasonableness depends on facts/circumstances of each case. Factors:
(a) Nature/object of the K
(b) Previous conduct of parties
(c) Presence/absence of good faith
(d) Experience of the parties
(e) Possibility of hardship/prejudice
(f) Specific number of days provided for performance
iii) Haisfield v. Lape. (p. 74).
(1) The sight line deed restriction was in the neighboring property that this property was split from.
(2) The buyer should have a reasonable amount of time to deal with problems that may arise in a deed. This problem came up the day before closing.
(3) Marketable Title- is free from liens or encumbrances; discloses no serious defects and is dependent for its validity upon no doubtful questions of law or fact; will not expose the purchaser to the hazard of litigation or embarrass him in the peaceable enjoyment of the land; could sell or mortgage the property at its fair value.
(4) Note 2- a. Encumbrances- Protect your buyer from clauses that say you accept all encumbrances to the property. Put into the contract exactly what your client is accepting.
Some courts say that o