Title Tender
Title,
Tender, and Performance
• During gap period, Litton (Buyer)
orders a survey, which reveals
that neighbor’s fence encroaches
onto land by six inches
• Can he use this title defect as a
basis to cancel the contract prior
to the scheduled closing?
• Tender is excused if:
– Other party anticipatorily repudiates the
contract (mere title defect ≠ anticipatory
repudiation)
– Tender would be futile (e.g., if Seller has
incurable title defect,
defect i.e.,
i e CCR that can’t
be removed; pending eminent domain)
– Terms of K permit cancellation of
contract prior to closing
• General rule: can’t place other party in
breach (excusing your obligation to
perform) w/out tender of performance
– Unless K provides otherwise, Buyer can’t put
Seller in breach w/out tendering price
(Buyer’s performance) on closing date
– Unless K provides otherwise, Seller can thus
cure title problem prior to closing date
Closing/Time for Performance
• If “time is of the essence,” party is in
material breach if it does not perform by
agreed time for closing
• If time is not “of the essence,” party has
“reasonable” time after scheduled closing
in which to perform
1
Miller v. Almquist (p. 65)
Cooperative Structure
• Almquist case involves co-op apartment
– In a housing co-op, the building is owned by coop association in fee simple absolute
– Residents ((members)) don’t have fee simple
p
ownership (as in a condo), but instead own:
• A share of the co-op association, and
• A leasehold interest (from co-op association
as Landlord)
• Held: Almquists were not in breach
• In agreeing to extend closing date, the
Millers could have unilaterally made time
“of the essence” (even though it wasn’t “of
the essence” in original K)
– But
But, the new “essential”
essential date has to give other
party reasonable time to perform [p. 68]; 15day extension was not reasonable time, so
tender on April 23 tender was valid (within a
reasonable time of original closing date)
• Almquists signed K to buy Apt. 4T from
Millers to close April 1
Millers,
– Time was not stated to be “of the essence”
– Almquists were late getting loan, so asked to
move closing to April 16; Millers agreed, but
insisted “time is now of the essence”
• Almquists tendered price on April 23
– Millers refused to close, saying Almquists’
tender was untimely; kept $54,500 deposit
Questions re: Almquist
• Is this court’s analysis
sound, given that the
Almquists themselves
chose the April 16 date?
Why should they now
get another extension?
2
• Opinion is generous to Almquists,
Almquists but this
is understandable in factual context
– Almquists asked to extend closing date to
April 16 “subject to availability of co-op’s
transfer agent”
– In
I reality,
lit ttransfer
f agentt was nott available
il bl
until April 23, so any extension of time
shorter than April 23 would’ve been per se
unreasonable
Lis Pendens Doctrine
• Buyer takes title subject to pending
litigation over title (lis pendens)
• Almquists sued immediately to enjoin
termination of K [p.
[p 67],
67] before Seller
resold to 3d party
– Thus, 3d party buyer would’ve taken title
subject to Almquists’ rights as plaintiff
Questions re: Almquist
• Note 1: Almquists “could have
obtained specific performance if
they’d wanted it.”
– Is this correct,
correct given that (as
the court notes p. 69) the
Millers then sold the unit to a
3rd party?
Equitable Conversion
• Buyer of land only acquires “legal title” at
closing, upon delivery of a deed
• But, once parties have a binding K for sale of
y has “equitable”
q
ownership
p rights
g
land,, buyer
(even if closing has not yet occurred and thus
buyer does not have “legal title”)
– Rationale: buyer has an interest that equity
can protect, via specific performance
3
• Equitable
q
conversion doctrine serves to
provide a “gap-filler” when parties did
not anticipate a pre-closing event (and
thus K is silent about that event)
– E.g., Seller dies after K, but prior to closing
– E.g.,
E
d
during
i
gap period
i d in
i condo
d sale
l K,
K the
th
HOA schedules a vote on amendments to
the condo CCRs (who gets to vote: buyer
or seller?)
Death of the Seller
• If K is conditioned on Seller being alive,
Buyer can’t enforce K; if not, Buyer can
enforce K vs. Seller’s estate
– Legal title passed to Seller’s estate, but subject
to Buyer’s right of specific performance
– Seller’s legal title “equitably converted” into
ownership of purchase money (personalty)
Judgments
• Judgment
Judg e t vs.
s defendant
de e da t becomes
beco es a lien
e
against any land owned by defendant in the
county where judgment is docketed
– In most states, lien arises by operation of law,
as soon as judgment is docketed
– In a few states, lien arises when record of
judgment is placed in the land records
• If not paid, plaintiff lien creditor can have
defendant’s interest sold at an execution
sale (sale proceeds applied to judgment)
Installment Ks vs.
vs Earnest Money K
• Under ILK, Buyer goes
into possession at
execution of K, 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:
Cl i
Buyer
B
takes
t k
possession/legal title
– Buyer grants mortgage
(if it obtained financing)
4
Judgment Lien v
v. Buyer
• Buyer signs ILK to buy land (30 years of
monthly installments), takes possession
• 5 years later, Creditor B gets a judgment
vs. Buyer
B
• Does Creditor’s B get a judgment lien
against the land?
• Under
U de Fulton
u to v. Duro,
u o, Creditor
C ed to would
ou d have
a e
valid judgment lien vs. Buyer
– Buyer is has “equitable title” under equitable
conversion doctrine
– Thus, Creditor’s judgment lien would attach to
Buyer’s equitable title to the land [p. 88], even
though Buyer hasn
hasn’tt yet received legal title
• Q1: Does this result make sense?
• Q2: How could Creditor enforce this lien, as
a practical matter?
• Buyer’s
Buyer s argument: my interest
under an ILK is not “real property”
– Seller retains legal title until Buyer
makes all payments
• Creditor’s argument:
g
equitable
q
conversion applies, Buyer is
“equitable” owner of land
• Who has the better argument here?
• Fulton is sensible result
– Seller is just financing Buyer’s purchase of the
land (ILK is a mortgage substitute)
– If Seller had deeded land to Buyer, and had
taken back a purchase money mortgage,
Buyer
y clearly
y would’ve had legal
g title (and
(
Creditor’s judgment lien would’ve attached)
– In substance (even if not in form), Buyer has
the real risks/benefits of ownership, and
should be treated as the owner of the land
5
ILK: Judgment vs
vs. Seller
• What if after 5 years (i.e., Buyer
hasn’t fully performed), Creditor S
gets jjudgment
g
g
vs. Seller?
• Does that judgment impose a lien on
the land (i.e., could Creditor S force
execution sale of the land)?
Problem 5: Judgment vs.
vs Seller
• 6/1: Litton signs earnest money K to sell land
to Crouch for $400K cash, to close 8/1
• 7/25: Mitchell gets $40K judgment vs. Litton
• 8/1: Crouch closes and receives deed
(unaware of judgment vs. Litton)
• Does Mitchell have valid judgment lien against
the land? Or does equitable conversion apply?
• Proper result: no
no, Creditor’s
Creditor s judgment
lien wouldn’t affect Buyer’s equitable title
– Rationale: Seller’s legal title has been
“equitably converted” into personal property
(i.e., the right to collect installment
p y
payments)
)
– Thus, Creditor S could garnish the
installments, but couldn’t force sale of land
as long as Buyer doesn’t breach (i.e., keeps
paying monthly installments under ILK)
P b 5
Prob.
5: E
Equitable
it bl Conversion?
C
i ?
• Crouch will argue equitable conversion
should apply
– E.g., at time of Mitchell’s judgment, Litton
h d already
had
l
d contracted
d to sell
ll to Crouch
C
h
– Thus, Crouch was now “equitable owner,”
and thus Litton had no “equitable” interest
to which Mitchell’s lien could attach
6
• Mitchell should be able to
enforce lien vs. Crouch
Problem 5
– Equitable conversion should
not apply here
– Crouch could’ve refused to
close (Litton
(Litton’s
s title was not
marketable), so Litton wasn’t
in a position to get specific
performance without paying
off judgment
Equitable Conversion/Risk of Loss
• Some courts have applied equitable
conversion as “gap filler”
– E.g., premises destroyed prior to closing
w/out
/ t ffault
lt off seller
ll
– If K is silent, risk of loss is on Buyer; Buyer
must pay purchase price (whether or not
Buyer was insured), despite damage
• Risk of loss due to
casualty is a risk of
ownership of land
• When casualty
occurs during the
gap period
period, does
the risk of loss fall
upon the seller, or
the buyer?
Risk of Loss
• Equitable conversion is dubious as default rule in
risk of loss in cases involving earnest money Ks
– 1) Buyer expects no material change in condition of
property prior to closing
– 2) If Seller is in possession, it is “cheaper cost
avoider” (can more easily insure/take precautions)
• Parties would typically place risk on party best
suited to bear it
• Compare “Massachusetts rule”: risk remains on
seller until closing occurs or until buyer takes
possession
7
UVPRA [p.
[p 96]
• Until closing or buyer taking possession, seller
bears risk of loss due to casualty or
condemnation (unless K says otherwise)
/
part of the subject
p
j
matter of
• If all/material
contract is destroyed w/out fault of buyer,
buyer may cancel and recover deposit
– After closing/delivery of possession, risk shifts
to buyer (unless K says otherwise)
8