Chapter 7 Flashcards
Can Abel avoid the contract because at the time of closing, Baker’s action precluded Oscar from delivering marketable title?
When Baker filed his lawsuit, his action served to make the title subject to reasonable doubt because the lawsuit implied that Oscar either did not own the property or that there was some sort of charge or encumbrance acting as a cloud on title. In any event, there was reasonable doubt because Oscar had to file a lawsuit to have Baker’s action dismissed. On its face, Oscar’s own indicates that there was a doubt as to Oscar’s title.
On the other hand, the test is “reasonable doubt,” and not “every doubt.” The law recognizes that not every lawsuit is a bona fide cloud on title. Indeed, in our case, Baker’s action was not driven by good faith but by emotional problems, problems that one court recognized by enjoining him from filing these habitual suits. Indeed, the last court recognized Baker’s bad faith by dismissing his suit in a matter of days—proof positive that Baker’s suit did not even rise to the level of creating reasonable doubt.
When the contract stated, “the parties understand that closing escrow on ______ is ________,” did they create a time is of the essence contract so that when escrow did not close on ______, could “X” secure rescission?
Stating that March 2 is “important” is very different from stating that this is a “do or die” date because what is “important” to one person may not in fact be a “material” term that will justify non-performance by another. Further, if Abel wanted to have a “time is of the essence” clause in the contract, he should have been astute enough to use the proper terminology and not rely on a court to interpret liberally fundamental law to relieve him from his own obligations. Importantly, the law is necessarily based on using correct language and the taking the law down to the lowest common denominator may help Abel but it will not help society. As the saying goes, tough cases make bad law.
On the other hand, just as we no longer require magical words of limitation to create a fee simple absolute (“to A and his heirs”), we should not insist on some magic formula to create a time is of the essence contract. The key is, or should be, the intent of the parties and totality of the circumstances. By making March 2 an “important” date, the parties have acted reasonably to manifest their intent that this is the date they are required to tender performance—or suffer the legal consequences.
Is Abel equitably estopped from securing rescission when he delayed in informing Oscar of Baker’s lawsuit?
Equitable estoppel precludes a party from raising an argument or defense that it otherwise would be allowed to raise but for its misleading conduct, if the innocent party would suffer consequential unconscionable injury. Misleading conduct can be actual fraud or “moral fraud.”
While Abel’s silence for a month after learning of Baker’s lawsuit but saying nothing to Oscar is not actual fraud, it was a moral fraud because Abel had special knowledge and did not share it. It appears that Abel was playing it craftily so that if he chose to avoid the contract on marketable title grounds/time is of the essence grounds (or risk of loss grounds), he could. In this regard, the covenant of good faith and fair dealing is implied in every contract and Abel’s silence about Baker’s suit smacks of bad faith—a moral fraud. As to Oscar’s injury, because of Abel’s silence, Oscar is now liable for a significant amount of money.
Nonetheless, it is a fundamental precept of property law that every owner is deemed to know the status of his or her property; that Oscar did not know about Baker’s suit until Able told Oscar is an indictment of Oscar’s lackadaisical attitude and not Abel’s dishonesty. Further, that Oscar booked a nonrefundable cruise in anticipation of the sale proceeds may well be an injury but it is not an unconscionable injury. One should not spend money until it is in the bank, a principle that any reasonable seller would understand.
Does Oscar bear the risk of loss when a lightning strike destroyed the building?
In some jurisdictions, in the absence of a contrary provision in the contract for sale, when property is destroyed through the fault of no one, the risk is on the seller: the transaction does not go through. The buyer gets his deposit back and the seller gets his property (sans the building) back. In other jurisdictions, the risk of loss is on the buyer: the transaction goes through. The seller gets his money back and the buyer gets the property (sans the building). This latter allocation of risk is referred to as equitable conversion.
