Title Example. Cure of Title Defect and Tender. When Tender Is Excused: Review. Closing and Tender

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1 Buyer s duty to pay purchase price and Seller s duty to deliver deed are concurrent conditions One party ordinarily can t sue to enforce a contract to purchase/sell land unless that party tenders performance first Closing and Tender Litton agrees to sell land to Myers for $300K cash, closing October 1 August 1: Myers discovers that a neighbor s fence is encroaching on the land, and neighbor refuses to move it (a defect that renders Litton s title unmarketable) That same day, Myers tells Litton: I don t intend to perform; return my deposit. Must Litton do so? Title Example Cure of Title Defect and Tender Unless K provides otherwise, Myers can t place Litton in breach before October 1 (the closing date), when Myers would have to tender the price Until then, Litton can cure the encroachment problem, unless K requires him to cure prior to October 1 Thus, if Litton can cure title defect and then tender deed on October 1, Litton would be in a position to enforce K or seek damages if Myers does not pay remaining price When Tender Is Excused: Review Exception: obligation to make tender is excused if The counterparty has committed an anticipatory repudiation of the contract, or Tender would be futile under the circumstances Can Litton argue that Myers s statement I don t intend to perform is anticipatory repudiation that excuses Litton s obligation to cure the defect and tender performance?

2 It is doubtful, in this context, that Myers s statement would be viewed as an anticipatory repudiation of the contract? If Myers said, I won t perform the contract, even if you get the neighbor to acknowledge the fence is encroaching and move it prior to closing? [If so, that s a repudiation] If Myers is saying Unless you can get the neighbor to move the fence (i.e., to cure the defect), I won t perform. [This is not a repudiation, but merely a statement articulating his legal rights in this context.] In context, Myers s actual statement is likely too equivocal to constitute a repudiation Closing and Time for Closing If contract specifies a specific closing date (e.g., August 1) and states that Time is of the essence of this agreement, then each party must tender performance by August 1 If so, Buyer cannot extend time for performance without Seller s consent (and vice-versa) If contract does not make time essential, either party can extend the closing for a reasonable period Cooperative Structure Almquist (p. 73) dispute involves a co-op apartment In a housing co-op, the building is owned by a co-op association in fee simple absolute Residents don t get fee ownership (as in a condo) Instead, residents get: Ownership of a proportionate share of the co-op association, and A lease for their unit (association is landlord; rent = resident s proportionate cost of the association s owning and maintaining building and the association) Miller v. Almquist (p. 65) Almquists contract to buy Apt. 4T from the Millers for $545,000 (with 10% deposit) Closing was to be April 1, but K did not say time of the essence Almquists had problems with loan approval; asked to move closing to Apr. 16; Millers agreed, but only if time is of the essence Further delays then prevented Almquists from closing until April 23 Almquists offered to pay $300/day for delay Millers refused to close late (and kept the deposit), claiming that the Almquists did not make timely performance

3 Miller v. Almquist Miller court notes that one party to the contract can make time of the essence, even if it wasn t originally so, just by giving unilateral notice to the other party, as long as the new essential date is not unreasonable [p. 76] Is that statement correct/appropriate? Does it give one party (like the Millers) the right to modify the contract unilaterally? Miller v. Almquist Millers didn t unilaterally modify the contract Under original K, Almquists had a reasonable time in which to close ( gap-filler, as K did not make time essential) If the Millers new essential date is a reasonable one, then it is within the parties original agreement and not a modification of it Why wasn t 15-day extension reasonable, given that the Buyers agreed to it? Miller v. Almquist Note: Almquists had asked to extend closing date to April 16, but subject to availability of co-op s transfer agent (who has to facilitate transfer of co-op share) In fact, the co-op transfer agent was never available to close until April 23 Thus, court would have treated any extended closing date before April 23 to be per se unreasonable Almquist Note 1, page 78: Casebook says that the Almquists could have obtained specific performance [of the contract] if they had wanted it. How can this statement be correct, given that the court also states that the Millers sold the land to a 3rd party (page 77)? Why wouldn t the 3rd party buyer be a BFP?

4 The Lis Pendens Doctrine Someone who buys land during the pendency of litigation involving title to that land is deemed to have notice of the litigation, and takes title subject to the end result of that litigation Thus, unless the sale to 3rd party had already taken place when the Almquists filed their suit on April 27, 3rd party buyer took subject to result in Miller v. Almquist, under lis pendens Death of a Party Seller and Buyer sign K for sale of land, to close on May 1 Seller dies on April 1 K is silent about the death of either party Seller s will (drafted 2 years ago) leaves all of Seller s land to A and all of Seller s personal property to B Questions: (1) Did Seller s death terminate K? (2) If not, and Buyer performs, who gets the purchase price? A or B? Equitable Conversion Once there s a binding K for the sale of land, the buyer has equitable ownership rights (even if buyer does not have legal title yet) Rationale: the buyer has an interest in the land that a court of equity could protect, in appropriate cases, by an award of specific performance Thus, in appropriate cases, equity regards as [already] done what ought to be done Death of the Seller Unless contract explicitly provides that the death of the Seller terminates the contract, the contract remains in effect after Seller s death Legal title passes into the Seller s estate, but subject to Buyer s rights under the contract (including the right to obtain specific performance of the contract from Seller s estate) Equitable conversion thus functions as gap-filling rule under circumstances where the contract was silent regarding the consequences of the Seller s death prior to closing

5 Equitable Conversion as Default Rule Equitable conversion would also apply as default rule in dispute over Seller s estate Once Seller entered into binding contract, Seller s legal title to the home was equitably converted into equitable ownership of the purchase money (which is personal property) Thus, under Seller s will, the purchase price paid by Buyer goes to B (devisee of Seller s personal property), not to A (the devisee of Seller s real property) Grant v. Kahn May 29: Grant contracts to buy home from Ganz for $320,000 Contract contains financing contingency July 20: Kahn gets $172K judgment vs. Ganz July 31: Grant completes purchase of home Later, Kahn tries to enforce judgment lien vs. home by sale, claiming Grant took the home subject to Kahn s judgment lien Held: Kahn did not have a judgment lien against the home, and could not force its sale Under equitable conversion, at time of Kahn obtained judgment, land had been equitably converted Equitable ownership of land was thus in Grant, not Ganz Even though contract was subject to financing contingency, Grant could/did waive it, and thus was in a position to obtain specific performance Questions: (1) Is this the right result? (2) How should the Kahns have acted differently? Grant v. Kahn On the one hand, Grant didn t need application of equitable conversion to protect him He could have refused to close due to judgment, unless Ganz paid it off and obtained release of lien (lien would have rendered title unmarketable) Other states do not apply equitable conversion in this situation (e.g., Schleuter Co. v. Sevigny (S.D. 1997)), and allow judgment creditor to assert lien

6 Grant v. Kahn On the other hand, application of equitable conversion does not mean Kahns have no rights Ganz s interest in the land was equitably converted into an equitable interest in the right to receive the purchase price (personal property) Kahns could have enforced their judgment against this right to payment by garnishment action against the buyer, Grant Installment Land K and Earnest Money K Compared Under ILK, Buyer goes into possession of the land at time K is executed, and begins paying installments Buyer does not receive deed (legal title), until all payments are made Earnest money K: Buyer doesn t take possession at execution of K Closing: Buyer takes possession/legal title Buyer grants mortgage (if it obtained financing) Installment Land Contract Compared Suppose Crouch is purchasing a home from Litton under an installment contract Contract was executed 5 years ago; Crouch has been in possession and making monthly payments for 5 years After 5 years, Mitchell obtains a $100K judgment vs. Litton, and asks the court to order an execution sale of the home In this situation, is the case for applying equitable conversion more or less compelling? In this situation, court should apply equitable conversion to protect Crouch (i.e., to hold that Mitchell s judgment against Litton did not attach to the land, which is owned by Crouch Litton is just financing Crouch s purchase of the land (ILK is a mortgage substitute or financing device) If Litton had deeded the land to Crouch at time of K, and had taken back a mortgage to secure payment of the price, then Crouch would ve had legal title, and Mitchell s judgment against Litton wouldn t have attached to the home In substance (if not in legal form), Crouch has the real risks/benefits of ownership, and thus should be treated as the owner of the land

7 Risk of loss due to casualty is a risk of ownership of land (one which owner typically insures against) When a casualty (like a fire that destroys improvements on the land) occurs during the gap period, does that risk of loss fall upon the Seller, or the Buyer? Risk of Loss Equitable Conversion and Casualty If contract explicitly allocates this risk as between Seller and Buyer, that contractual allocation is binding E.g., If Seller has the risk of loss, and the property is damaged during gap period, Seller cannot obtain specific performance of K If contract is not explicit, how should court fill the gap? If court applies equitable conversion: Buyer is equitable owner at time of K Thus, buyer would bear risk of uninsured loss! Equitable conversion is dubious as a useful default rule in risk of loss situations 1) Typical buyer expects no material change in condition of property prior to closing 2) Seller is cheaper cost avoider Seller is in possession, can more easily insure or take precautions vs. fire Parties would typically expect risk to be borne by the party best suited to bear it Contrast Massachusetts rule : risk remains on seller until closing or buyer takes possession Risk of Loss (Installment Land Contract) Where Buyer is purchasing under an installment land contract, applying equitable conversion as a default rule to allocate risk of loss makes sense Once Buyer goes into possession, Buyer is the superior risk avoider, and logically should bear loss Parties are free to contractually allocate that risk in some other way if they wish to do so

8 UVPRA [p. 110] Until closing or buyer taking possession, seller bears risk of loss due to casualty or condemnation (unless contract provides otherwise) If all or a material part of the subject matter of contract is destroyed without the fault of buyer, buyer may cancel and recover deposit After closing/delivery of possession, risk shifts to buyer (unless contract provides otherwise)