SALE OF LAND a.

Statute of Frauds (SOF): Transfer of an interest in land, except for a lease for less than three years, must comply with the Statute of Frauds (SOF). There must be a writing, signed by the party to be charged, that, at a minimum, describes the property and states the price i. Enforcement is uneven; some courts are willing to give effect to oral agreements under circumstances in which fraud seems unlikely ii. The Uniform Land Transactions Act permits parties to enter into a binding contract without having agreed on the price iii. In some states the SOF requires a writing containing all material terms of the contract, but there is no agreement on what all material terms includes. iv. There are two principal exceptions to the SOF: 1. Part performance: Oral agreements may be enforced when particular acts pursuant to the agreement have been performed by one of the parties a. In some jurisdictions, acts that satisfy the evidentiary purpose of the SOF (acts that would only make sense if there had been a contract) suffice b. In others, the contract will be enforced if the plaintiff can show that he would otherwise suffer irreparable injury because of actions taken in reliance on the contract c. A few states do not recognize the part performance exception 2. Estoppel: a. When one party has been induced to change position to his or her detriment in reliance on the contract, the contract will be enforced b. A party may also be estopped from asserting the SOF (that is, the nonexistence of a written contract) if the result would be the unjust enrichment of that party b. Marketable title: An implied condition in any contract for the sale of land is that the seller can and will convey marketable title i. A marketable title claim is a contract-based claim, not a deedbased claim; thus, it must be asserted before the deed is transferred 1. If the deed is delivered and contains no warranty of title, the buyer has no recourse (see II(c), below) 2. Seller is obligated to tender marketable title on the closing date; buyer may not rescind for lack of marketable title prior to that date ii. Defects which may render the title unmarketable include 1. Outstanding mortgages

-1-

2. Restrictive covenants a. A covenant that compels the owner to do what the law otherwise requires does not render title unmarketable b. A covenant that is obsolete and no longer enforceable (such as a racially restrictive covenant) does not render title unmarketable 3. Outstanding reverter rights 4. Encumbrances 5. Easements upon any appreciable part of the property a. In many states visible and notorious easements are excepted 6. Variations in the names of grantors and grantees in the chain of title 7. Outstanding dower interests iii. Title is not unmarketable simply because it was acquired through adverse possession iv. The existence of zoning restrictions does not render the title unmarketable, but violations of zoning or housing code restrictions may c. Merger of contract and deed: When a buyer accepts a deed, the buyer is deemed to be satisfied that all contractual obligations have been met; the contract merges into the deed i. Exceptions: fraud, collateral obligations d. Doctrine of equitable conversion: If there is a specifically enforceable contract for the sale of land, the buyer is viewed in equity as the owner from the date of the contract; the seller holds legal title as trustee for the buyer. i. The interests of buyer and seller are thus descendible ii. Risk of loss 1. Majority rule: Buyer bears the risk of loss (e.g., if building burns down before closing, buyer is still liable for the purchase price) 2. Minority rule: Seller bears risk 3. Uniform Vendor and Purchaser Risk Act: Risk is on the party in possession e. Duty to disclose defects i. Common law (New York): Caveat emptor 1. Even in New York, a defect created by the seller that is not readily observable and not known to the buyer may be grounds for rescission ii. Modern trend, esp. in residential sales 1. Seller has a duty to disclose material facts regarding the condition of the property that are not readily observable and not known to the buyer

-2-

2. Nondisclosure calculated to mislead is fraudulent concealment f. Implied warranty of quality: Generally a warranty of workmanlike quality is implied in the sale of new construction i. The Uniform Land Transactions Act (ULTA), not yet adopted by any state, provides for two implied warranties against persons who are in the business of selling real estate 1. Implied warranty of suitability a. Applies to used as well as new buildings b. Applies only to defects so serious as to make property unsuitable for its intended purpose 2. Implied warranty of quality a. Applies only to new construction b. Applies to defects in quality even if not serious enough to make property unsuitable for its intended purpose c. ULTA: Runs with land to subsequent buyers, with six-year SOL i. Six years is the usual SOL for express warranties g. The deed i. Warranties of title: Three types of deed are in general use in the U.S. 1. General warranty deed (GWD) warrants against all defects in title, whether they arose before or after the grantor took title 2. Special warranty deed (SWD) warrants against defects in title arising from the grantors acts 3. Quitclaim deed contains no warranties; conveys whatever title the grantor has to the grantee 4. Effect of warranty deed: Both the GWD and SWD contain six covenants of title: a. Present i. Covenant of seisin: Grantor is seised of the property ii. Covenant of right to convey: Grantor has the right to sell and convey the property iii. Covenant against encumbrances: The property is free and clear of all encumbrances (liens, mortgages, easements, restrictive covenants, or equitable servitudes) 1. See also warranty of marketable title, II(b), above. 2. Visible and notorious easement may be OK

-3-

3. (Minority rule) Any easement actually known to the grantor does not violate the covenant 4. Encumbrances assumed by the grantee (such as a mortgage) or beneficial to the grantee (utility easements) do not violate the covenant b. Future i. Covenant of quiet enjoyment: Grantee will quietly enjoy the property (i.e. will not be evicted by grantor, grantors agents, or holder of paramount title) ii. Covenant of warranty: Grantor will warrant and defend the grantee against any conflicting claims to the property iii. Covenant of further assurances: Grantor will execute a document or take other actions necessary to perfect the grantees title (See also estoppel by deed at II(g)(ii)) 5. Future grantees a. Present covenants i. At common law, only the immediate grantee had a cause of action against the grantor; the cause of action for breach was personal property and did not run with the land; this is still the majority rule ii. Minority rule: The cause of action is impliedly assigned to subsequent grantees, subject to the statute of limitations b. Future covenants run with the land and thus protect remote grantees until a breach occurs i. Once a breach occurs, the covenant is no longer a covenant but a cause of action, and the question is not whether it runs with the land but whether it is assignable ii. The cause of action is generally treated as impliedly assigned to subsequent grantees, subject to the statute of limitations ii. Estoppel by deed: If, by warranty deed, grantor conveys land that s/he does not own, and grantor subsequently acquires title to the land, the grantor is estopped to deny that s/he had title at the time of the transfer: the subsequently acquired title automatically passes to the grantee 1. May also be applied to quitclaim deeds if the deed represents that the grantor had title

-4-

iii. Delivery: To be effective, a deed must be delivered with the intent that it have present effect 1. Rarely an issue in a commercial transaction, where delivery is part of closing 2. Grantor either hands deed to grantee or places deed in the hands of a third party (escrow agent) who will deliver to grantee at closing a. If the grantor can recall the deed from the agent, there is a revocable, rather than true, escrow, and no delivery b. Relation back: If necessary to carry out the parties intent and for equitable reasons, when escrow agent delivers deed the title of the grantee will relate back to the date grantor delivered it to the agent 3. Deed may also be delivered without handing over the deed: For example, the grantor may execute a deed and place it somewhere with the intention that title shall pass to the grantee immediately a. If the intention is that title shall pass to the grantee at the grantors death, the deed is an attempted will and probably invalid (because it does not comply with the Statute of Wills) b. But if the deed is placed in escrow and the grantor dies before the escrow agent delivers it to the grantee there is a valid transfer, because the date of the transfer relates back to the date of delivery to the agent h. The mortgage: an interest in land created by a written instrument providing security for the performance of a duty or payment of a debt i. Borrower = mortgagor; creditor = mortgagee ii. Common law (minority rule): Mortgage conveys legal title to the mortgagee iii. (Majority rule): Mortgage creates a lien on the property iv. Conveyance of mortgaged property 1. Subject to mortgage: Grantee is not liable in personam, but mortgagee may foreclose if debt is not paid 2. Assumption of mortgage: Grantee becomes personally liable for the debt

-5-