COMMERCIAL REAL ESTATE TRANSFERS – VOLUNTARY TRANSFER OF PPTY
I. LAND SALE CONTRACTS (p 557-626)
A. CONTRACTS OF SALE: sale of land has 2 steps: (1) contract to sell/purchase ppty is signed (2) closing: seller gives buyer a deed to ppty and buyer give seller consideration
a. STATUTE OF FRAUDS: no interest in ppty can be conveyed w/o writing signed by party to be charged (party against whom it is asserted there is a K) – can consist of several documents when taken together as a whole are evidence of an agreement for the ppty (doesn’t need to be formal)
b. Essential Terms: writing must contain sufficient description of ppty, price, parties, and conditions
c. Specific Performance: since real ppty is unique, cts will use equity powers to force parties to go through sale rather than award damages
d. Oral Revocation: most states: SOF only for making of K, allow oral modification or revocation
e. Time of Performance: if K is not performed on date in agreement then ea party has reasonable time
f. HICKEY v GREEN (Specific Performance)
RULE: Partial performance made in reliance of oral land transfer agreement is sufficient to overcome SOF that K must be in writing
Facts: Hickeys sold home and gave partial payment in reliance of Green conveying ppty, but Green rescind the agreement
- R2d§129: party seeking specific performance must show reasonable reliance and he has changed his position such that injustice can only be avoided by specific performance
B. MARKETABLE TITLE: it’s implied in every K for sale of land that seller will furnish buyer “marketable title” at closing
- title is free from doubts, one that a prudent person would buy, does not mean perfect title just one that’s good enough for title insurance co to be willing to insure
1. Good record title: title must be good based on documents in chain of title, precludes adverse possession
2. Defects in title: private encumbrances, unrecorded easements, covenants, restrictions on use
3. Curing title defects: seller usu. has until closing to cure defects
- minor defect like unrecorded release of lien may be solved by part of purchase price set aside to cover lien
- seller must deliver ppty unencumbered (no outstanding mortgages or liens)
- if an easement benefits the ppty it doesn’t make the title unmarketable
- zoning restrictions don’t make title unmarketable
- easements shown on official maps may make title unmarketable
4. Violation of building codes / Zoning: if the govt can demand correction, title may be unmarketable
- the law does not want someone to buy into a possible lawsuit
5. LOHMEYER v BOWER (Violation of public/private restrictions)
RULE: Marketable title to is title that does not expose buyer to litigation
Facts: Prior to transfer, title search showed ppty has 2 encumbrances & both were violated
- existence of municipal restrictions (zoning) is not grounds for buyer to rescind
- private covenant / restrictions (height requirements) may be encumbrances rendering title unmarketable
- immaterial defects do not diminish value of ppty & is not grounds for buyer to rescind K
6. CONKLIN v DAVI (Adverse possession & impact of marketable title)
RULE: Title only has to be shown to be marketable for 1st time at trial
Facts: Buyer refuses sale, claiming buyer took part of ppty through adverse possession (K didn’t req perfect title, just marketable title)
- when seller’s title is by adverse possession, he may: (1) perfect record title (obtain record title from former owner, quiet title, action to concede outstanding encumbrance) OR (2) enter LSK hoping to convince buyer/ct that marketability of title if just (P chose this)
- Title is marketable if it’s free from reasonable doubt (not every doubt)
- Law will imply that title marketable (even if K is not)
- When ct determines marketability, it does it at final judgment (not at closing)
- If adverse possession is clear, title is marketable (P must est. that outstanding claimants will not succeed if they assert a claim and not such claim will be asserted)
C. RISK OF LOSS: damage to ppty btwn time K is entered and closing
1. Equitable Conversion: btwn time K is entered and closing, buyer has title to ppty (buyer is equitable owner and seller is legal owner), buyer still doesn’t have rt to possession until closing
2. Alternative Approaches: (majority rule) once buyer acquires equitable title (after signing purchase agreement) risk of loss is his – (minority rule) risk of loss remains with seller until closing
3. STAMBOVSKY v ACKLEY (Duty to Disclose Defects)
RULE: Where seller creates condition that materially alters value of LSK & careful buyer is unlikely to discover it, failure to disclose condition creates basis for rescission as a matter of equity
Facts: Ackley sells house she widely publicized as haunted & Stambovsky would not have discovered it
- Doctrine of Caveat Emptor: “Let the buyer beware.” (seller has no duty to disclose info unless there’s a confidential/fiduciary relationship btwn parties or seller actively conceals)
o Req buyer to act prudently and exercise due care
4. JOHNSON v DAVIS (Material Defect Known to Seller)
RULE: Seller has duty to disclose material facts affecting value of ppty when not known or readily observable to buyer
Facts: Davis buys home w/ leaky roof when D said roof did not leak
- Misfeasance: improper performance of an act
- Nonfeasance: failure to perform an act that ought to be
- Buyer has relief for fraudulent misrepresentation IF: (1) seller makes false statements about material facts (2) seller knows representation is false (3) seller intends that buyer rely on it AND (4) buyer is injured by reliance
- Even if D’s misrepresentation after K was executed it is still material
- CL: no liability for nonfeasance but failure to disclose material fact when intended to induce false belief is close to affirmative representation
5. WARRANTIES FROM SELLER: CL rigidly applies “caveat emptor” but modern cts follow implied warranty that building is fit for use contemplated by both parties
6. LEMPKE v DAGENAIS (Implied Warranty of Workmanlike Quality)
RULE: Privity of K is not nec for latent defects that manifest themselves w/in reasonable time after purchase and cause economic harm – requiring privity defeats purpose of implied warrant to good workmanship and could leave innocent buyer w/o remedy
Facts: Lempke purchased house where recently built garage roof has defect
- cts fear that not adhering to privity of K will impose unlimited liability on contractors
- many cts find implied warranty as contract law on basis of public policy
- recovery for purely economic harm is allowed (buyer has rt to expect what was bargained for)
- extension of liability should be limited to latent affect in a limited period of time
II. DEEDS:
A. REQUIREMENTS:
- (1) only the grantor must sign (should be acknowledged before a notary to comply with recording acts), may need signature of spouse
- (2) any words evidencing an intent to make a transfer will suffice
- (3) deed must name an ascertainable grantee
- (4) ppty must be described
1. Consideration: deed does not need consideration (grantor may give ppty away)
2. Failures in Description of Ppty: describe by metes & bounds, recorded plat, name of ppty, street address; extrinsic evidence can be admissible to clear up ambiguities
- patent ambiguity (on face of deed) can't be resolved by extrinsic evidence
- latent ambiguity (not on face of deed) can always be resolved by extrinsic evidence
- modern trend: allow extrinsic evidence to resolve both ambiguities
B. WARRANTIES OF TITLE: most deeds contain “usual covenants” from seller to buyer
1. Types of deed warranting title:
a. General Warranty deed: warrants title (usu. type of deed and contains usu. covenant)
b. Special warranty deed: only warrants title from defects arising during time grantor held land
c. Quitclaim deed: only transfers whatever interest grantor has
2. Usual Covenant:
a. Present Covenants: “I, the grantor” warrant as of date of deed, I have not breached the covenant”
- covenants are breached when they are made
- SOL begins to run as of date of conveyance
i. Covenant of Seisin: seller covenants he owns the ppty conveyed
ii. Covenant of Rt of Convey: seller warrants he has rt to convey ppty
iii. Covenant Against Encumbrances: seller promises no easements, covenants, mortgages or liens
b. Future Covenants: continuing covenants may be breached at moment of conveyance or afterwards (SOL doesn’t run til there’s an actual breach)
i. Covenant of Quiet Enjoyment: seller warrants that buyer will not be disturbed in possession of ppty by lawful claim of 3rd party
ii. Covenant of Warranty: seller warrants that title of ppty is good & grantor will defend any suit from party claiming paramount title at his own cost
iii. Covenant of Further Assurances: usu. covenant, rare in America, seller promises to perform any acts necessary to perfect buyer’s title to ppty
C. Breach of Covenants: present covenants are “personal” and do not run with the land; future covenants run w/the land
- min cts: covenants against encumbrances run w/ land
1. BROWN v LOBER (Present v Future Covenants)
RULE: Covenant of quiet enjoyment can be breached by constructive eviction (but covenantee’s right of possession must be interfered with)
Facts: Bost sold land to P but conveyed only 1/3 mineral rights
- covenant of quiet enjoyment does not guarantee that there’s no one with paramount title
- unless someone comes in & tries to mine the coal, there is no constructive eviction & no breach
2. FRIMBERGER v ANZELLOTTI (Latent land use violation)
RULE: Latent violation of restrictive land use statute not in land record don’t constitute violation of warranty against encumbrances
Facts: After purchasing ppty, P discovered ppty violated state environment protection statutes
- proper way to deal w/ violations is by contract provisions or language in deed
- Encumbrance: rt or interest in land that may exist in 3rd persons, to the diminution of value of equity in land, but consistent w/ passing of fee by conveyance
3. ROCKAFELLOR v GRAY (Remote Grantees) – READ THIS OVER
RULE: Covenant of seisin does run w/ the land (English Rule) & is broken the moment conveyance is delivered, becoming a chose in action held by covenantee
Facts: Rockafellor purchases land & agrees to assume mortgage to Gray (who forecloses on mortgage)
- Chose in action: rt to bring action or rt to recover debt or money
- Seisin: possession of real ppty under claim of freehold estate
- For covenant to run with land, grantor must convey title or possession (may be assigned to remote buyers)
- A chose in action is a personal rt to sue, not attached to ppty (avoids SOF)
D. DELIVERY: grantor must sign and deliver (leaving on desk is ineffective)
1. Delivery defined: 2 requirements: (1) grantor must manifest intent to make deed effective (words or conduct) AND (2) must immediately give to grantee
a. Evidence of Intent: extrinsic evidence is ok to prove (non)delivery
b. Delivery Cannot be Cancelled: once it’s been delivered, the only way to get it back is to deed it back to grantor
c. Estoppel: Even if no delivery, grantor may be estopped from denying delivery if subsequent good faith purchaser is involved
2. Types of Delivery: 2 types (1) grantor and grantee (2) involves 3rd party intermediary
a. Grantor-grantee Delivery: presumed delivery if: grantee has deed, grantor acknowledged signature (assumed delivered on date of grantor’s signature) – no delivery presumed if: grantor has deed
b. Delivery Subject to a Condition: conditions in the deed are usu. valid; modern cts allow grantor to revoke deed prior to date is passes legal title to grantee; oral condition is not valid
3. SWEENEY, ADMINISTRATRIX v SWEENEY (Unsuccessful Conditional Delivery)
RULE: When deed is handed to grantee but to take effect after death of grantor, deed is considered
properly delivered
Facts: Maurice deeded ppty to brother John and recorded. Simultaneously, John deeded ppty to Maurice
but did not record. Maurice dies but there was intended delivery to Maurice so wife gets ppty.
- Conditional deliveries can only be effected through 3rd person, who delivers deed upon occurrence of condition (death of brother)
- b/c Maurice had deed and John intended to deliver it, Maurice’s heirs have rts to ppty
- Testamentary: made in lieu of a will; not to take effect until after death
4. ROSENGRANT v ROSENGRANT (No intent to part w/ power to retake)
RULE: Where grantor delivers deed but retains rt of retrieval & states deed to operative only after his death, then delivery is not legally sufficient
Facts: Elderly couple tried to transfer deed to nephew but held rt to retrieval & said it was effective only after their death
- Couple was trying to use the deed as a will, so it was constructive delivery (not valid)
- If they want to avoid probate involved with a will (in writing, signed, witnesses) they can est. a revocable trust (hold their farm in a trust, retain possession for life, LE = couple, remainder = Jay)
- Revocable deed: strictly comply w/ legal requirements for delivery (even w/o written instrument)
- Revocable trust: equitable instrument & grantor only manifest intent to create trust (+ signed writing to satisfy SOF)
5. Delivery to 3rd Parties (Escrow): to make a transfer conditional on occurrence of event
a. Escrow: grantor delivers deed to 3rd party w/ instructions to deliver to grantee w/ occurrence of condition (effective so long as grantor doesn’t retain rt to revoke delivery)
- grantee is deemed to receive title when grantor delivered deed into escrow
b. Reservation of Power to Revoke: General Rule: grantor has such ctrl over deed that there’s no delivery (modern cts don’t recognize delivery – some cts recognize delivery if contingency is beyond grantor’s ctrl)
6. Estoppel of Grantor: prevents grantor from denying he delivered the deed
a. (e.g. if grantor delivers ppty to A and A breaches trust then sells to C, a BFP – grantor is estopped from denying delivery but may sue A)