Doctrine of Equitable Conversion – once a contract is signed, equity regards the buyer as the owner of the property. The seller’s interest is looked at as personal property. The legal title of the property remains with the seller and is considered to in trust and the risk is on the seller. The right of possession follows the legal title; the seller is entitled to possession until closing. Risk of Loss – there is a split of authority on risk of loss when a contract is signed, equity is passed to buyer through escrow and the risk of loss is on buyer.
If property is destroyed before closing, the majority rule places the risk on the buyer. If the property is damaged or destroyed, the seller is to credit any monies from the insurance against the purchase price the buyer is required to pay. Because Birdwell did not rescind the contract he will be required to pay the $90,000 because he did not consult an attorney and because the real estate agent put a new price on the property of $50,000.
However, since the contract was silent at risk, the Uniform Vender and Purchaser Risk Act, Birdwell could request this option. However, neither party had insurance on the property. Here, no one had insurance on the property. If property is destroyed and the seller has insurance, the seller will be required to reduce the sale price by the amount of damage. Because there was no insurance on the property, and the agreement was silent, the risk of loss would be on the buyer and Birdwell’s option would have to be under contract law or marketable title.
Statute of Frauds (SOF)– The terms of a land contract must be in writing and signed by the parties, including full names of the parties, words showing intent, a meeting of the minds for the transaction to buy or sell property, the price, and sufficient description of the property. Astor and Birdwell entered into a contract for the sale of Roseacre, which was for $100,000 with a down payment of $10,000 and $90,000 at closing set for August 1. Under the SOF, Roseacre must have a description of the land that is sufficient for identification.
Here, there was no description that sufficiently described the land for sale and this would violate the SOF. Because there is no description another option would be to allow extrinsic evidence of property to allow for the description of the land to be added to the contract regarding Roseacre. Here, Birdwell is to be the equitable owner of the land beginning with and during the period between forming the contract and closing. Question #2 –Assuming a Uniform Vendor and Purchaser Risk Act jurisdiction what were Birdwell’s options on August 2 when he finally gets around to consulting an attorney? Marketable Title.
Breach of covenant of marketable title and breach of covenants of title is determined by which jurisdiction it follows on equitable conversion or the Uniform Vendor and Purchaser Risk. Under the equitable conversion, equity title and risk of loss passes to buyer as soon as the contract is signed. Seller could force buyer to pay and take titled to the damaged property. Under the Uniform Act, seller retains the risk of loss until title or possession passes. Buyer can rescind and sue for restitution of the deposit. On August 2, Birdwell cannot rescind the contract because he can only sue for breach of warranty of marketable title.
Because closing is done and completed under the Uniform Vendor and Purchaser Risk jurisdiction, Birdwell’s attorney would advise that he has taken legal title or possession of the property and would not be cleared from his contractual duty. Here, because, Birdwell has the deed and because of an accident and the property was completely destroyed and a new value placed on the property, this would be a loss and Birdwell would have to sue under covenant of title. Question #3 – When Birdwell discovers the gas bill August 15 what are his options? Usual Covenants in General Warranty Deed.
A general warranty deed contains covenants of title warranting against defect in title, including defects by predecessors. A general warrant deed contains three present covenants and three future covenants. The present covenants are breach if all at the time of the delivery of the deed. The future covenants run after closing. If one of the covenants is breached Birdwell may recover damages from Astor. A. Present covenants are breached if at the moment the deed is delivered and personal covenants are personal and do not run with the land for the benefit of the successor.
Seisin the present covenant warrants that the seller of the property owns the property that they claim to convey. Right to convey warrants that the grantor has the power to convey the property and that there are no restrictions on the power of the seller to convey power. Against Encumbrances warrants that there are no easements, servitudes, or mortgages on the land. Here, Astor breached the present covenants when the deed was passed and he knew that the property had a lien against it. Because of these facts there is an amount owed of $1500 and $750.
B. Future Covenants are breach if after the grantee’s possession of the land is disturbed, and then the future covenants may not be breached at the moment of the conversion and can be breached later. Future covenants run with the land and can be enforced by purchasers. Because Astor broke Birdwell’s future covenant when he shows the property to Clifford, this would breach Birdwell’s covenant of quiet enjoyment. Quite enjoyment warrants that the grantee will not be disturbed in the possession by a third party’s lawful claim of title.
Here, Birdwell’s deed is defective and damages are recoverable for breach of covenant against encumbrance, which is the difference in value between the land without these encumbrances and land with encumbrances. The lesser amount would have to be paid by Astor. Question #4 – On September 1 Birdwell has still not been unable to successfully get a resolution on the dispute over Roseacre. What are the chances of claiming his deed valid and Clifford is not a Bonafide Purchaser? Bona Fide Purchaser is someone who pays for the value for property and takes title of property without notice of any preceding claims.
The notice statute requirement is that the party must be a bona fide purchaser and that party takes their interest without the notice. Here, the subsequent purchaser Clifford’s deed will prevail. Taking without Notice – Clifford inquired if about if there were any liens and he was told there were none by Astor. Therefore, he did not get actual notice and the deed was not recorded, unless there was inquiry, constructive notice will prevail. Constructive Notice exists if a prior claim was properly recorded within the chain of title so that a subsequent purchaser will be charged with notice of claim.
A reasonable search is required of the purchaser of records such as the tool Tract Index or the Grantor-Grantee index. Here, constructive notice would exist because Birdwell did not record his deed, this show Clifford did not get proper notice. Inquiry notice is something that arises that could cause a reasonable person to be on notice and the Grantee is responsible to know if anything that a reasonable person would reveal. Even though during the inspection of the property, Clifford noticed different signs that stated “sold” and he also saw a construction crew working.
This was observed prior to Clifford making an offer. Quiet title – Birdwell has two options one a title dispute, therefore in a quiet title action, a court proceeding removes any clouds or encumbrances on the title to real property to establish new ownership of the property. Here, Birdwell did not record the quiet title and there was a failure to clear title after making payment to Astor. Because Astor did not convey a deed to Clifford, the court will have to decide the recording based on the recording statutes above.