Basic Real Estate/Property Question Forum

[Silver93]

I have a question regarding a real estate transaction for Property that didn't seem to be clearly addressed in our course. If this is an elementary issue please excuse my ignorance as we only addressed it in passing.

B finds out that A is selling his property Blackacre. B then informs a third party C that he is selling Blackacre (not as a listing broker). B and C enter into a sales contract and work towards a successful closing. B then goes back to A and purchases Blackacre for valuable consideration. On the day of the closing C finds out that B didn't really own the land when they entered into the sales contract and wants to back out of the deal. Is this deal enforceable? If it is not, then why? A violation of marketable title?


I would appreciate any help. Thanks in advance.

[remotelyfeasible]

I realize this isn't helpful, but your property class covered a lot different material than mine.

[98234872348]

I have a question regarding a real estate transaction for Property that didn't seem to be clearly addressed in our course. If this is an elementary issue please excuse my ignorance as we only addressed it in passing.

B finds out that A is selling his property Blackacre. B then informs a third party C that he is selling Blackacre (not as a listing broker). B and C enter into a sales contract and work towards a successful closing. B then goes back to A and purchases Blackacre for valuable consideration. On the day of the closing C finds out that B didn't really own the land when they entered into the sales contract and wants to back out of the deal. Is this deal enforceable? If it is not, then why? A violation of marketable title?


I would appreciate any help. Thanks in advance.

As far as I understand, the only time marketable title is breached is when the title conveyed is reasonably free from doubt and would not subject the purchaser to the hazard of litigation. Under your hypo, so long as B possesses title to Blackacre at the time of the closing I don't see why it would be a breach of marketable title. The only thing I can think of is if there was a duty on the part of the seller to inform the buyer that he did not own the property at the time of the sale, but I can't imagine that there is. C could have easily discovered that B had no title to the property be performing record search, so, I think that in this situation C has to take the property.

Although to be honest I haven't ever encountered a problem like this.

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[BunkMoreland]

sounds more like a contracts question than a property one

Isn't it misrepresentation to withhold something like that?

[vanwinkle]

sounds more like a contracts question than a property one

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[mikeytwoshoes]

sounds more like a contracts question than a property one

Isn't it misrepresentation to withhold something like that?

Mis. rep. would actually be a torts issue (economic loss doctrine).

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[mikeytwoshoes]

sounds more like a contracts question than a property one

Isn't it misrepresentation to withhold something like that?

Mis. rep. would actually be a torts issue (economic loss doctrine).

Misrepresentation can be a contract issue as well. It is used as a defense to negate assent (assent by improper means). If I remember my prof's offhand comment correctly, contract law may have borrowed it from torts.

Mis. Rep. itself is a tort issue (whether the elements of mis. rep. occurred). From there you can try to sue on the in tort but the economic loss doctrine will likely bar a suit on the tort theory. Therefore, you try to use mis. rep. as fraud in the inducement, which likely won't work. At this point, you're stuck suing on a contract. You end up in contract law but you wanted tort law (unless you want to get less money).

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[mikeytwoshoes]

Mis. rep. would actually be a torts issue (economic loss doctrine).

Misrepresentation can be a contract issue as well. It is used as a defense to negate assent (assent by improper means). If I remember my prof's offhand comment correctly, contract law may have borrowed it from torts.

Mis. Rep. itself is a tort issue (whether the elements of mis. rep. occurred). From there you can try to sue on the in tort but the economic loss doctrine will likely bar a suit on the tort theory. Therefore, you try to use mis. rep. as fraud in the inducement, which likely won't work. At this point, you're stuck suing on a contract. You end up in contract law but you wanted tort law (unless you want to get less money).

Are you referring to this particular problem or in general? Yes, contract took the misrepresentation elements from established tort doctrine (I looked it up), but under established common law of contract you can use breach of contract by misrepresentation without relying on tort law. Once the misrepresentation is included in the contract, you can exclusively rely on contract law since it has incorporated the elements established in tort law.

As far as which to go for, I agree that would depend on what you can prove and what amount of money you can get. There you will get into the reliance interest (torts) v. the expectation interest (contracts).

[rando]

I have a question regarding a real estate transaction for Property that didn't seem to be clearly addressed in our course. If this is an elementary issue please excuse my ignorance as we only addressed it in passing.

B finds out that A is selling his property Blackacre. B then informs a third party C that he is selling Blackacre (not as a listing broker). B and C enter into a sales contract and work towards a successful closing. B then goes back to A and purchases Blackacre for valuable consideration. On the day of the closing C finds out that B didn't really own the land when they entered into the sales contract and wants to back out of the deal. Is this deal enforceable? If it is not, then why? A violation of marketable title?


I would appreciate any help. Thanks in advance.

As far as I understand, the only time marketable title is breached is when the title conveyed is reasonably free from doubt and would not subject the purchaser to the hazard of litigation. Under your hypo, so long as B possesses title to Blackacre at the time of the closing I don't see why it would be a breach of marketable title. The only thing I can think of is if there was a duty on the part of the seller to inform the buyer that he did not own the property at the time of the sale, but I can't imagine that there is. C could have easily discovered that B had no title to the property be performing record search, so, I think that in this situation C has to take the property.

Although to be honest I haven't ever encountered a problem like this.

This is definitely a question that we saw in real estate finance. But it was all of 6 months ago and I am not about to dig out old outlines. The above looks pretty solid. Good luck.

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[Silver93]

The only two things I could come up with were:
1. Possible fradulent misrepresentation.
2. Violation of the General Warranty Deed (Seisin and Convey), but they hadn't closed yet, so that wouldn't make any sense.

[dcpolitico]

A covenantor who fraudulently conceals the state of the title cannot compel the covenantee to accept an after-acquired title in satisfaction of the covenants. Alvarez v. Brarnan, 7 Cal. 503; 68 Am. Dec. 275, Elliott v. Blair. 6 Coldw. (Tenn.) 185; Blackmore v. Shelby, 8 Humph. (Tenn.) 438.

http://www.jstor.org/pss/3314455
Edwin H. Abbot, Jr., "Can Fraud Be Purged?", 67 U. Pa. L. Rev. 37,37-61 (1919).

but see also 37 C.J.S. Fraudulent Conveyances § 42 (2009) ("A conveyance of property which is fraudulent as to creditors may be purged of the fraud by matters ex post facto. For example, no rights can be lost or acquired by a fraudulent conveyance of property where the property is retransferred before the fraudulent purpose is effected and before any lien has been acquired by creditors. The same result has been reached where the grantee pays debts of the grantor to the full value of the property conveyed.")

[dcpolitico]

Right, but B concealed the state of the maketable title to C, and then B later perfected the title by buying the house from A. This whole hypo seems to be about whether we should allow B to purge his fraud of concealing the state of the marketable title.

BTW, this hypo seems to be verbatim from the Abbot artcle (see above link).

[dcpolitico]

"The only purpose of a conditional sale contract is to give the seller security for the purchase price of property agreed to be sold by the terms of the instrument. There are many authorities, such as First Nat. Bank of Missoula v. Marlowe, 1924, 71 Mont. 461, 230 P. 374, which hold the seller must be the actual owner of the article sold before a conditional sale contract is valid." Joe Heaston Tractor & Implement Co. v. Claussen, 59 N.M. 486, 287 P.2d 57 (1955).

Surely, we don't want to encourage people to sell land for which they have no legal claim of right, even if they subsequently obtain some right. Land is much different than fungible commodities. Plus, it looks like B is trying to circumvent real estate agent laws. Society regulates the realty practice.

Does anyone just get a "gut" feeling that what B is doing feels wrong? Also, think about the inefficiency and social waste that would result if we encouraged this behavior. Double recording duties by the government, inflated realty prices, sellers who know very little about the property they claim to be selling, etc...