Real Property - Real Estate Contracts

Question 1

A valid contract for the sale of land must satisfy…

Answer 1

A valid contract for the sale of land must satisfy the statute of frauds. Generally, the contract must:

1. Be in writing and signed by the party to be charged;

AND

2. Contain all of the essential terms (i.e., parties, property description, terms of price and payment).

Question 2

What are the two main exceptions to the writing requirement

Answer 2

Partial performance

and

promissory estoppel/detrimental reliance

Question 3

Wha tis partial performance?

Answer 3

One of the exceptions to the writing requirement.

Partial performance by either the seller or buyer is treated as evidence that the land sale contract existed. This is a valid exception to the writing requirement in many jurisdictions if
any two of the following three are met:

1. Possession by the purchaser;
2. Payment of all or part of the purchase price;

AND/OR

3. Improvements to the land made by the purchaser.

Question 4

What is Promissory Estoppel/Detrimental Reliance

Answer 4

One of the exceptions to the writing requirement.

Promissory Estoppel/Detrimental Reliance operates as a valid exception where a party reasonably and foreseeably relied on the land sale contract to his detriment and would suffer hardship if the contract is not enforced.

Question 5

What does merger mean?

Answer 5

Covenants under the land sale contract are merged into the deed and CANNOT be enforced unless the covenant is also in the deed.

Question 6

Merger breaks the land sale contract down into two stages, what are they?

Answer 6

1. Contract Stage. Prior to closing (i.e., the date that the ownership of the property is transferred to the buyer), any liability must be based on a provision in the land sale contract.
2. Deed Stage. After closing (i.e., the date that the ownership of the property is transferred to the buyer), any liability must be based on a deed warranty.

Question 7

What is the implied covenant of marketable title?

Answer 7

In every land sale contract, the seller has a duty to convey marketable title to the buyer at closing. Marketable title is title that is free from an unreasonable risk of litigation.

Question 8

Defects in title that render title unmarketable include:

Answer 8

1. Title acquired by adverse possession that has not yet been quieted (i.e., supported by a judicial decree).
2. Future interest holders that have not agreed to the transfer;
3. Private encumbrances (e.g., mortgage, covenant, option, or easement);
4. Violation of a zoning ordinance;

OR

5. Significant physical defect (encroachment on the land that is incurable).

Question 9

If there is a defect in title rendering title unmarketable…

Answer 9

…, it must be fixed or cured BEFORE closing (at which point the contract and deed merge and the deed controls). If the seller cannot deliver marketable title at closing, the buyer can rescind the contract without penalty.

Question 10

If A conveys to B; C challenges B that he owns the land; B successfully defends against C; is A liable to B under covenant of warranty?

Answer 10

No, because the covenant of warranty requires defense only against suits that turn out to be meritorious.
The covenant of warranty includes a promise by the covenantor to defend on behalf of the covenantee any lawful or reasonable claims of title by a third party. So if the grantee had lost the suit, she could have recovered her legal costs (and the value of the property) from the grantor.
But ironically, by winning against the adjoining owner, the grantee lost her right to recover from the grantor. When she won versus the neighbor, she established that the adjoining owner’s claim was without merit. At that point, the grantor had no obligation to reimburse her for defending this now-known-to-be-valueless claim.

Question 11

Can purchaser waive marketable title requirement?

Answer 11

Yes, the purchaser may choose to waive the requirement that the seller deliver marketable title. However, a seller CANNOT cancel a land sale contract for failure to deliver marketable title if the buyer chooses to waive the requirement.

Question 12

What is the implied warranty of fitness or suitability?
Who may enforce this warranty?

Answer 12

The implied warranty of fitness or suitability applies to defects in new construction. It protects against latent defects (i.e., defects that are not discoverable from a reasonable inspection) and warrants that the new construction is safe and fit for human habitation.

In most jurisdictions, both the initial purchaser and subsequent purchasers may recover damages. In other jurisdictions, only the initial purchaser can enforce this warranty.

Question 13

What is the duty to disclose defects?

Answer 13

Most jurisdictions impose a duty on the seller to disclose material defects to the buyer.

Material defects are defects that substantially impact the:

1. Value of the property;
2. Desirability of the property;

OR

3. Health and safety of its occupants.
   General disclaimers (e.g., “as is”) do NOT satisfy the seller’s duty to disclose defects.
   (note: this is part of the reason why in the torts MEE, the guy who sold and no longer occupied his house was liable to the pedestrian when slate flew off the roof.)

Question 14

Who is responsible for damages to the property in the period between when the land sale contract merges with the deed?

Answer 14

Depends on jurisdiction.

In the majority of jurisdictions, the purchaser holds equitable title during the period between the execution of the contract and the closing and delivery of the deed. During this period:

1. The purchaser is responsible for any damages to the property;

AND

2. The seller, as holder of legal title, has the right to possess the property.

A minority of jurisdictions follow the Uniform Vendor and Purchaser Risk Act. This places the risk of loss on the seller until closing and the delivery of the deed.

Question 15

If property worth $100k, and we agree to a $50k as deposit for liquidated damages, and then B dies, and trustee of estate demands money back, but S says no and tries to enforce the deposit for liquidated damages, what is result?

Answer 15

Trustee wins, NOT BECAUSE B DIED, but because the $50k provision is not enforceable. Not enforceable because The amount fixed must be reasonable relative to either the anticipated loss (viewed as of the time the contract was signed) or to the actual loss (as determined by the passage of time).

unreasonable penalty = unenforceable, even if agreed upon by both parties.