REAL ESTATE TRANSACTIONS OUTLINE

Spring 2006

I. THE TRANSFER OF OWNERSHIP-CONVEYANCES

a. Contracts for the Sale of Land

i. Real Estate Brokers

1. Notes

a. PROCESSES – Real Estate is Bought / Sold:

i. Execution of K

ii. Inspections of property /examination of title

iii. Arrangement of financing by buyer

iv. Closing / ―settlement‖

v. Recordation of deed

b. Listing process

i. Involves the execution of contract by seller which in effect appoints broker as his /

her agent in obtaining buyer

ii. Generally under some arrangement, if broker successful then the seller owes broker

a commission

c. Broker‘s Authority

i. USUAL RULE: Broker has authority to merely show, advertise, and market

property (not actually enter into K of sale)

ii. Broker cannot generally force sale to take place if seller refuses (even though

seller may still be liable for commission)

d. Power to Consummate a Sale

i. If the language of listing agreement is SPECIFIC ENOUGH, it may give broker the

―power of attorney‖ to enter into K and consummate sale

ii. Some case law suggests that the phrase ―or contract to sell‖ which is used in forms

does not mean the broker has power to form a contract

iii. IF POWER TO CONSUMMATE IS ENDED – IT MUST BE VERY CLEARLY

STATED!

e. Types of Listings

i. THREE TYPES:

1. Open listing - Owner agrees to pay listing broker if sale; owner retains

power to sell himself; owner may procure other brokers

2. Exclusive agency listing - Only one broker to sell property; owner can still

sell his/her own property w/o having to pay commission

3. Exclusive right to sell listing - Sale of property during contract of agent

obligates payment of commission

ii. NOTE: The majority of properties listed are EXCLUSIVE RIGHT TO SELL f. What is an ―Exclusive Listing Agreement‖?

i. An ELA is a contract that creates an agency (a fiduciary relationship which P

retains A giving A authority to act for P)

g. Multiple Listing Services

i. in addition to form agreement, seller and broker may prepare card or form

regarding detailed information about house/property

ii. Information is published in multiple listing service book

iii. Maintain data on computer database / printed book

iv. Essential to marketing of property – provides access to property

h. Common Problems with Some Listing Form Agreements (examining paragraphs from

Sample Agreement) – HOW IS COMMISSION EARNED BY BROKER/AGENT?

i. Agent procures offer on seller‟s terms

1. NOTE: This means that if offer is submitted consistent with terms of

seller – EVEN IF NO K EVER SIGNED – commission may be earned

ii. Seller removes property from market

1. NOTE: This provision is not necessarily in all common exclusive listing

agreements

2. NOTE: This provision suggests that an agent / broker is relying upon

agreement & expending resources (time/money) to locate buyer

1

3. FAIRNESS NOTION - Such a provision suggestions fairness to the broker

to not allow the seller to remove property from mkt. w/o commission paid

for work by broker leading up to point of removal

4. KEY IN WORKING WITH CLIENTS: Lawyer will want to make sure

before allowing client (seller) to agree to such a provision that seller is

committed to selling/moving

i. Other Illustrations of ―how commission is earned‖ (NWA Exclusive Listing Agmt.)

i. Broker presents offer equal to or greater than offering price

ii. Broker presents offer of lesser price or terms acceptable by seller

iii. Property sold during post-term period during which commission will be due if

property sells (after term of agreement expired)

iv. Seller revokes or violated listing agreements – material breach

v. Seller executes option to purchase / it is exercised during listing agreement

j. Possible Drafting Solutions

i. Insert paragraph that explains how COMMISSION IS EARNED; Ex:

―commission shall be earned when the following X takes place . . .‖

1. EXAMPLE: This commission shall be payable only on the happening of

one of the following events: (a) if sale of the Property is made before the

Expiration Date of this listing and transfer of title to the Property is

completed as a result; (b) if, before the Expiration Date of this listing,

Seller and a Purchaser execute an option to purchase or a lease with option

to purchase the Property (―Option‖) and the Option is subsequently

exercised and transfer of title to the Property is completed as a result,

whether or not the Option is exercised during the term of this agreement;

(c) if this agreement is revoked or violated by Seller and a court of

competent jurisdiction finds in a final, non-appealable order that the

revocation or violation constituted a material breach of this agreement by

Seller and that Broker did not materially breach this agreement; or (d) if

within 180 days after the Expiration Date of this listing Seller conveys or

exchanges or grants an option for the sale or exchange of the Property to

any person named in a written list of prospective purchasers provided by

Broker to Seller prior to the Expiration Date of this listing, unless the

Property is listed with another broker. Seller has no obligation to agree to

terms for any purchase, exchange or option unless all of the proposed

terms are acceptable to Seller.

ii. Remove ―said Agent‖ – change to ―agent‖

iii. If a term is defined (Seller / Agent), the terms should be capitalized/written

consistently throughout agreement

2. CASE – Drake v. Hosley - RULE FROM CASE: A broker is entitled to a commission if improper

or frustrating conduct by the property owner prevents title to the property from passing

a. Background: Drake signed exclusive listing agreement with the Hosley company; agreement provided for certain things to occur in order for commission to be awarded (1) find willing and able buyer and (2) entered into binding sale and (3) if property is sold ; group of buyers was found; purchase / sale agreement signed; Drake called off sale; Drake sold to other buyers; Hosley filed lawsuit claiming entitlement to commission;

b. Issue: Whether Hosley performed obligations under agreement in effect to earn commission? Did Drake frustrate Hosley‘s performance?

c. RULES:

i. Traditional rule: broker is entitled to commission when he produces a buyer

ready, willing, and able to purchase the property on the seller‘s terms, even if the

sale is not completed.

ii. (MINORITY RULE – Dobbs rule): In the absence of default by the seller, the

broker‘s right to commission comes into EXISTENCE only when his buyer

performs in accordance with the K of sale; A BROKER IS STILL ENTITLED to a

commission if ―IMPROPER OR FRUSTRATING CONDUCT‖ by owner prevents

title from passing

d. Holding: Dobbs rule is applied; A broker is STILL entitled to a commission if ―improper or frustrating‖ conduct by owner prevents title from passing; Hosley found buyers who were

2

willing; buyers tried to perform, but Drake frustrated their performance; Hosley is entitled

to commission

3. Notes

a. Is the commission owed if no closing occurs?

i. COMMON LAW RULE: broker‘s claim for commission exists despite failure to

close (presents ready, willing able buyer);

ii. MINORITY RULE – Dobbs rule: In the absence of default by the seller, the

broker‘s right to commission comes into EXISTENCE only when his buyer

performs in accordance with the K of sale

iii. Under Dobbs: An agent may not recover from the breaching buyer who refuses to

close (no contractual relationship b/w agent and buyers)` b. Duty to Disclose Material Facts

i. Broker has a duty to disclose to a buyer MATERIAL DEFECTS known to the

broker but unknown to and unobservable to the buyer

ii. Easton case – extended duty; agent liable for damages when not disclose the fact

that earlier earthslide had occurred/no direct evidence agent knew it; HELD: Duty

to “conduct reasonably competent and diligent inspection of residential property

listed for sale and to disclose to prospective purchasers all FACTS MATERIALLY

AFFECTING VALUE

c. What must be disclosed BY BROKER? (BOTH TO SELLER/BUYER)

i. Not necessarily limited to physical property

ii. DUTY OF BROKER - Failure to disclose existing restrictive covenants that might

affect buyer could make broker liable for damages when sale falls through

iii. DUTY OF BROKER – if broker fails to disclose material adverse information

about buyer to seller, broker may be held liable

ii. The Statute of Frauds / Part Performance (NOT TESTED ON)

1. Notes

a. Typically a delay b/w contract for sale & closing

b. REASONS FOR TIME LAG B/W k / CLOSING:

i. Make sure title is clear / marketable

ii. Arrange financing

iii. To sell previous home

iv. To locate new home (seller)

v. To inspect home purchasing

c. TYPES OF CONTRACTS (2)

i. Short-term / earnest money / deposit receipt / binder / marketing K

1. Characteristics:

a. Lag b/w K -> closing (to arrange inspections, financing, etc.)

b. Seller maintains possession until closing

c. Buyer takes possession at closing

ii. Real estate installment K

1. Characteristics:

a. Buyer go into immediate possession

b. Payments made to seller on regular basis

c. Deed rec‘d when last installment is paid

d. WRITING REQUIREMENT:

i. Most real estate Ks are in writing

1. Why in writing when broker involved?

a. Not want deal to fall through / solidifies transaction

b. Reconfirms the seller‘s obligation to pay commission

2. CASE – Shelton v. Williamson - RULE OF LAW: Extensive memoranda sufficiently set forth the

terms of an agreement for the sale of real estate where the memoranda imply who the parties are,

what the subject of the K is, and what the parties‘ promises are = meets SOF

a. Background: Shelton (P) could not produce a formal written agreement showing land K

with Looney for sale of 80 acres; he did produce extensive memoranda evidencing the

agreement; D asserted that evidence was insufficient to satisfy SOF; b. Issue: What constitutes a sufficient writing in order for the contract for a sale of real estate

to be adequate?

c. Rules:

3

i. A writing satisfies the SOFs ―memorandum‖ requirement if it sets forth essential

terms of a contact

ii. “Essential terms” of K for sale of real estate are:

1. PARTIES;

2. SUBJECT MATTER;

3. CONSIDERATION;

4. PRICE;

5. PROMISES UPON BOTH SIDES

iii. When essential terms exist in a document, it is specifically performable event

through it may leave something to be desired in draftsmanship iv. A writing need not be an explicit and complete K

v. Terms need not be defined as long as the substance of agreement appears from

writing

vi. TO SATISFY THE SOF:

1. Not essential to have single document

2. May be contained in separate writings when separate writings taken

together meet the requirement of the statute

3. Documents need only be connected either by EXPRESS REFERENCE to

one another or BY CLEAR IMPLICATION established through respective

contents

3. Notes on Statute of Frauds

a. What sort of writing?

i. Any memo which contains necessary information about K / properly signed ii. WILL SUFFICE:

1. A letter, a check, minutes of commission, will executed, affidavit,

complaint, financial statement filed with office

2. Several related documents which can be tied together by court to embody

necessary elements

3. It has been destroyed prior to trial, or is otherwise unavailable for

introduction into evidence, if there is credible proof that it existed

4. It is written long after K was formed

a. Signed by one party – never been delivered to other party

b. Person seeking to enforce K did not know writing existed until

after litigation commenced

b. Deed as writing

i. Deed can be sufficiently definite as to terms of K, names of vendor/vendee, and

description of land

c. What must writing contain?

i. THE ESSENTIAL ELEMENTS:

1. Parties

2. subject matter

3. Consideration

4. Price

5. Promises on both sides

ii. NOT NECESSARY:

1. Date / place of closing

2. Provisions for apportioning taxes

3. Statement as to type of deed

4. Notary

5. Signatures of witnesses

d. Who must sign?

i. Most American SOF -> require signature by ―party to be charged‖ – person

resisting enforcement of K

e. Modifications / rescissions

i. Oral rescission of real estate K is BINDING; while oral modification IS NOT

BINDING

ii. A modification NOT WRITTEN is unenforceable in court;

iii. Part performance as modified could make it binding

f. Electronic communication

4

i. E-Sign Act – modified states‘ SOF -> signatures electronically ok for SOF

iii. Remedies and Real Estate Contracts

1. CASE – Donovan v. Bachstadt – MAIN PRINCIPLE: a buyer of real estate may recover

incidental damages for seller‘s breach (can‘t deliver good title)

a. Background: Donovan (buyer) contended he was entitled to the differential in interest rates

he experienced due to Bachstad‘t‘s failure to fulfill their land sale K; B agreed to sell

property to D, financing it at 10.5%; B was unable to provide good title to property, thus

breaching agreement; D purchased other property financed at 13.25%; H sued to recover

difference in interest rates; Trial court – financial aspects were incidental and denied

recovery; Court of appeals reversed

b. Issue: May a buyer recover incidental damages for sellers‘ breach? YES

c. Holding: In measuring P‘s loss, there should be a determination of FMV of the property

and the house that could be acquired with a purchase money mortgage in principal amount

of $44K at interest rate of 10.5% for 30 year term. The plaintiffs would be entitled to the

difference of $58,900 and that fair market value;

i. WHAT IS COURT REALLY SAYING? On the date of breach, if buyer had same

down payment (14,900) and borrowing 44K at current market rate, what house

could the D afford to buy? (P/I payment of X when interest rates were 10.5%; now

the interest rates are 15% (higher P/I payment)-> lowers purchasing power of the

same amount of money;

d. RULES:

i. NJ has English rule

ii. This court determines that the English Rule is outdated & no longer valid for

reasons it was originally

iii. The American Rule is preferable

iv. Whether titles are clear may be ascertained by record searches

v. IMPORTANT: Parties may insert provisions in agreements that protect them

from title defects so that the sellers may control the measure of redress

vi. The innocent purchaser should be permitted to recover benefit of bargain

IRRESPECTIVE of good or bad faith of seller

vii. A buyer of real estate may recover incidental damages for seller‘s breach

viii. A purchaser must be allowed to enjoy the benefit of the bargain (AMER. RULE)

ix. A DEFAULTING vendor should not be allowed to escape full liability merely b/c

K is one for realty

x. Three categories of remedies for breach of K: restitution, compensatory, and

performance:

xi. Compensatory put injured in as good as if K performed

xii. What position is DEPENDS UPON PARTY EXPECTATIONS (Hadley – damages

should arise naturally in contemplation of parties at time made K)

xiii. TRADITIONAL TEST: Damages should be the difference b/w mkt value and K

price

xiv. Determining proper elements of damages depends upon the terms, conditions, and

nature of agreement:

xv. Damages IN THIS CASE = difference in interest cost incurred by them in

purchasing a different home in another location

2. Notes from Case:

a. TWO COMPETING RULES:

i. American Rule awards the benefit of bargain (difference b/w market vs. K price);

award consequential damages/incidental damages

ii. English rule (1/2 jurisdictions follow) DOES NOT allow recovery of incidental

damages; only restitutionary recovery when seller‘s title is defective

1. Rationale: When rule was founded, good title was almost impossible;

extreme uncertainties of title existed

3. NOTES:

a. Limiting Buyer‘s Remedy to Rescission

i. ENGLISH RULE – limiting purchaser to restitutionary recovery when seller‘s

title is defective but the seller has acted in good faith (1/2 STATES)

5

ii. AMER. RULE – benefit of bargain for purchaser when seller‘s title is defective

1. LIMITATION: the loss-of-bargain damages is ONLY AVAILABLE if

the property‘s value is higher than K price (damages = Mkt. – K price)

b. Incidental and Consequential Damages

i. What other elements might an innocent buyer attempt to recover (from seller‟s

breach)?

1. Expenses for title examination, survey, and attorney‘s fee

2. Loss of particularly favorable financing from a bank or savings ass‘n no

longer available b/c of interest rate changes (seller‘s breach)

3. (rental costs) Cost of leasing temporary quarters elsewhere, including rent,

moving expenses (AS LONG AS SELLER KNEW)

c. Date of Valuation

i. TRADITIONAL VIEW: the date of the BREACH – measure benefit of the

bargain damages (mkt. value)

ii. Donovan case – suggests that might not be fair; opt for RESALE PRICE instead

(actual reselling price)

d. What Seller‘s Damages May be Recovered for Buyer Breach (BUYER‘S BREACH):

i. Carrying costs of property until it is resold – assuming reasonable efforts to sell

continued (Exs: taxes, insurance, utilities, maintenance)

ii. Interest income the seller expected to earn on purchase price or on purchase-

money mortgage financing he was obligated under K to provide purchaser – SPLIT

1. some states allow recovery for lost interest on PM

2. Other states deny recovery for interest seller expected to earn on cash

purchase price

iii. Cost of a second real estate broker‟s commission on resale if seller was obliged to

pay commission of first sale even though it did not close? SPLIT:

1. Some states approve recovery of resale expense

2. Johnson v. Curtis – ARK APP CASE – rejects recovery of resale expense

iv. Increased tax liability as result of changes in tax laws occurring b/w scheduled

closing under original contract and date of later resale?

1. CA has denied recovery

e. Specific Performance Plus Damages

i. (some jurisdictions) Even if K is performed – either under specific performance or

voluntarily AFTER UNJUST DELAY, a non-breaching party may be allowed to

recover damages for interest on purchaser money mortgage purchaser should have

been paying and for carrying costs of property during period of delay

ii. Other examples of damage awards despite ultimate performance:

1. recover taxes

2. recover interest

3. recover damages for deterioration to improvements on land during delay

4. recover for higher cost of mortgage financing which purchaser must pay

b/c interest rates have risen during delay

4. CASE – Centex Homes Corp. v. Boag – MAIN PRINCIPLE: THE EQUITABLE REMEDY OF

SPECIFIC PERFORMANCE WILL NOT LIE FOR ENFORCEMENT OF K FOR SALE OF

CONDO (GOES VS. TRAD‘L RULE FOR LAND)

a. Background: K signed to purchase a condo from Centex; B put down 10% then stopped

payment and informed C that he no longer wished to buy when his employer was

transferring him to another city

b. Issue: Can a K for sale of a condo be enforced by specific performance? NO c. Holding: Damages sustained by condo sponsor resulting from breach of sales agreement

are readily measurable and the damage remedy at law is wholly adequate.

d. RULES:

i. Specific enforcement is not available to enforce K for sale of condo

ii. Remedy for specific performance was designed to provide remedy for K involving

unique and special articles or things

iii. Land is always considered unique so that money is not an adequate remedy

iv. Spec. perf. Is often granted for K involving land

v. A condo is different from traditional land K (vast in number, models are quite

similar, similar to personal property)

6

5. Notes

a. Specific Performance

i. Most courts grant specific performance for either party

b. Damages as an Adequate Remedy

i. The court in Centex suggests that the remedy at law was adequate as the condos

were not unique; damages could make the person whole;

ii. Where land/real estate transactions are involved, damages might make whole in the

following situations:

1. Tract of land is numerous in quantity / very similar

2. Ongoing sales/clearly-defined price schedule for tracts of land

c. Grounds for Denial of Specific Performance

i. TRADITIONAL RULE: Most courts grant specific performance for EITHER

PARTY (buyer / seller)

ii. EVEN IF VENDOR CANNOT PERFORM FULLY, the purchaser may still want

to get specific performance WITH ABATEMENT

iii. SPECIFIC PERFORMANCE WILL BE DENIED WHEN:

1. If specific performance would produce unjust or unconscionable results

2. If the contract is excessively vague

3. If vendor has resold land to purchaser who had no notice of prior contract,

the court will not force innocent purchaser to give up land in order to give

to original buyer (NOT THE CASE IF PURCHASER TOOK WITH

NOTICE OF PREVIOUS K)

4. If purchaser was buying land for purpose of immediate resale at a profit,

damages would be considered adequate remedy at law (NOT EQUITY) –

(land not unique/ongoing sales of land)

5. Precedent or concurrent conditions which have not been fulfilled or if P is

in substantial breach

6. If K gives vendor right to forfeit the purchaser‘s earnest money as

liquidated damages, the clause may be treated as vendor‘s sole remedy

(BARRING SPECIFIC PERFORMANCE & ANY OTHER EQUITABLE

REMEDY – CHECK LANGUAGE OF K)

d. Specific Performance with Abatement

i. ABATEMENT – (arguments in favor)

1. Equivalent portions

2. Ease of calculating abatement

3. When can show that land is ALL SAME VALUE – easy to abate

4. When land can be easily segregated into differing values, abatement may

be easy

ii. VS. ABATEMENT

1. Uniqueness of missing/Acreage missing / contains something vital –

ABATEMENT IS DIFFICULT/SPECIFIC ENFORCEMENT IS

DIFFICULT

iii. Treatment of specific performance with requested abatement for breach can be

broken down into THREE CATEGORIES:

1. If differential is so minute as not to impair the K substantially, then

arguably no breach of K occurred and specific performance will lie with no

abatement

2. If deficiency is sufficient to rise to level of a breach, the courts are willing

to award specific performance with purchase price abatement

3. When breach is so substantial that court would be enforcing not the

parties‘ contract but a K of the court‘s own creation, the court is not

willing to allow abatement

e. Earnest Money

i. A purchaser is NEARLY ALWAYS expected to make an ―earnest money‖ deposit

when submitting offer to buy real estate

ii. If offer is ACCEPTED, the money may be taken directly by the seller or held until

closing by broker or seller‘s attorney

iii. Earnest money is NOT ESSENTIAL to the formation of an enforceable contract –

ONLY MUTUAL PROMISES are needed

7

iv. It is however CUSTOMARY

6. CASE – Mahoney v. Tingley – MAIN PRINCIPLE: A seller who chooses to utilize the liquidated

damages device in earnest money agreements cannot avoid effect of the agreement

a. Background: Mahoney sued Tingley for breach of earnest $ agreement; Mahoney contended

that liquidated damages clause in agreement allowed her to sue for specific performance of

agreement upon Tingley‘s breach or retain earnest money as liquidated damages;

b. Issue: Can a seller who chooses to use the liquidate damage clause in an earnest money

agreement avoid the effect of the agreement? NO

c. RULES:

i. Where the earnest money agreement provides that upon the purchaser‘s failure or

refusal to complete the transaction, the earnest money shall be forfeited as

liquidated damages, unless seller chooses specific performance, COURT held that

seller cannot pursue a third remedy of unliquidated damages which is not written

into agreement

ii. Some case law suggests that where a stipulated amount of damages is substantially

below actual damages, the limitation will be found to be unenforceable

(HOWEVER Contrary authority exists)

iii. Except when fraud or serious overreaching by purchaser, a seller who chooses to

use the liquidated damages provision in an agreement, cannot avoid the effect of

the agreement.

7. Notes

a. What makes the liquidated damage clause unenforceable? (THREE THINGS):

i. Injury caused by breach must be difficult or impossible to estimate accurately

ii. Parties must intend to provide for damages rather than a penalty

iii. Sum stipulated must be reasonable pre-estimate of probable loss

b. What date should ―reasonableness‖ of liquidated damages clause be measured?

i. TRADITIONAL: TIME OF CONTRACT

ii. OTHER APPROACHES:

1. Date of breach/not disproportionate to actual damages

2. BOTH date of breach and date of contracting

iv. Time of Performance & Tender

1. CASE – Miller v. Almquist - MAIN PRINCIPLE: Where a contract for the sale of real property

DOES NOT specify that time is of the essence, and a party granting an adjournment of the closing

date unilaterally makes time of the essence, IT IS NOT REASONABLE for the seller to inflexibly

hold the buyer to a short adjourned closing date chosen by the buyer.

a. Facts: Miller (plaintiff) contracted with Almquist (defendant) to buy Almquist‘s apartment

for $545,000; K provided that the K would terminate if Miller (Plaintiff) was in default;

Miller would then forfeit a 10% down payment if default occurred; The K did NOT provide

that time was of the essence; After Miller missed the first scheduled closing date, Almquist

claimed that time was of the essence and agreed to an adjournment of 15 days; When Miller

missed a second closing date about two weeks later, Almquist considered Miller in default

even though the delay was the result of documentation glitches and that Miller could close

within a week;

b. Issue: Where a K for the sale of real property DOES NOT specify that time is of the

essence and a party granting an adjournment of the closing date unilaterally makes time of

the essence, is it reasonable for the seller to inflexibly hold the buyer to a short adjourned

closing date chosen by the buyer? NO

c. RULES:

i. Where a K for the sale of real property DOES NOT specify that time is of the

essence, and a party granting an adjournment of the closing date unilaterally makes

time of the essence, it is NOT REASONABLE for the seller to inflexibly hold the

buyer to a short adjourned closing date chosen by the buyer

ii. IMPLIED WARRANTY OF GOOD FAITH / FAIR DEALING - Every K contains

an implied obligation to deal fairly and avoid actions that would deprive the other

party of the fruits of the agreement

iii. When a K for the sale of realty DOES NOT specify that time is of the essence,

EITHER PARTY is entitled to REASONABLE ADJOURNMENT of the closing

date, and the other party may unilaterally impose a condition that time is of the

essence as to the rescheduled date.

8

iv. TO BE EFFECTIVE, this condition must be REASONABLE AS TO THE TIME

PERIOD

v. FACTORS FOR DETERMINING REASONABLENESS OF CONDITION:

1. Nature of the contract

2. Previous conduct of parties presence or absence of good faith

3. Experience of parties

4. The possibility of hardship or prejudice to either party

5. The specific number of days provided for performance

vi. APPLICATION TO CASE:

1. (NATURE OF CONTRACT) the time period from the initial scheduled

closing date to the time when buyers were ready, willing, and able to close

was VERY SHORT

2. (NATURE OF CONTRACT) The brief nature of the additional

adjournment supports a conclusion that the few days initially allowed were

NOT REASONABLY SUFFICIENT to achieve the buyers‘ purpose

3. (PREVIOUS CONDUCT) There were no extensive delays or acts of bad

faith by buyers and the buyers‘ attorney explained in a timely manner any

delays and communicated with Almquist‘s attorney

4. (EXPERIENCE OF PARTIES) buyers were inexperienced in real estate; 5. (POSSIBILITY OF HARDSHIP) Buyers would suffer hardship by not

obtaining the apartment (which they wanted to make room for growing

family); While sellers would not have suffered any prejudice from the

short delay

2. Notes

a. The Significance of Time Being ―essential‖

i. UNLESS a contract itself or circumstances make time ―essential‖ or ―of the

essence,‖ IT IS NOT such in equity; but it is always of the essence AT LAW

ii. RULES ABOUT “TIME OF ESSENCE”:

1. TIME IS NOT OF THE ESSENCE:

a. The party who is late, but who tenders her own performance

within a REASONABLE TIME after the agreed closing date, may

nevertheless:

i. Enforce the K by specific performance or

ii. Rescind the contract and recover her earnest money if the

other party refuses to perform

b. The party who is late in tendering performance is liable for

―interim‖ damages caused by the delay; AND

c. The party who is late is barred from recovery of damages against

the other party if the latter party repudiates the contract ( the late

party‘s tender on time being a condition to other party duty to

perform)

2. TIME IS OF THE ESSENCE:

a. One who is late cannot enforce the contract in equity or law;

b. Delay is treated as a material breach

c. Innocent party‘s duty of performance is discharged

d. Innocent party is entitled to rescission, damages, or retention of

buyer‘s earnest money if usual tests are met

3. SUMMARY OF RULES:

a. If time is NOT of the essence, a late (but reasonably late) tender

of performance is a breach of contract, but it is NOT a material

breach

b. One who commits an IMMATERIAL BREACH must pay damages

caused by the breach

c. One who commits an IMMATERIAL BREACH continues to have

power to enforce the K

d. If time is NOT of the essence and the party tenders performance

that is UNREASONABLY LATE, or if time IS of the essence and

a party is late at all, the breach is MATERIAL; the other party‟s

duty of performance is discharged

9

b. How much delay is UNREASONABLE?

i. Even if time it NOT of the essence, an UNREASONABLE delay will put the late

party in MATERIAL BREACH and deny him or her enforcement of the K c. Circumstances that make time essential

i. Merely stating a precise time in the contract WON‘T MAKE TIME ESSENTIAL

ii. AN EXPLICIT STATEMENT IS NECESSARY: ―Time is of the essence of this

contract‖

iii. EXCEPTIONS TO EXPLICIT STATEMENT: special circumstances, rapidly

fluctuating values or evidence that one party was particularly concerned of on-time

performance

d. Unilateral Notice Making Time Essential

i. Even if TIME IS NOT OF THE ESSENCE ORIGINALLY, EITHER PARTY

can unilaterally make it so by giving other party NOTICE to that effect and fixing

date for performance

ii. The new date must be REASONABLE (Miller case)

iii. Once notice is provided, it is binding on both parties

e. Waiver of Timely Performance

i. Even if time is of the essence, either party can waiver the other‘s duty to perform

strictly on time

1. ILLUSTRATION: The vendor may tell the purchaser: ―I now you‘ve

been having trouble getting your financed arranged, but don‘t worry about

being ready to close next Friday (the date fixed in the contract); I‘ll work

with you on this.‖

ii. After giving a waiver, a party may reinstate ―time of the essence‖ but must give a

REASONABLE TIME for the other party to prepare to close.

f. When Tender is Excused

i. ORDINARILY - The obligations of the seller to tender a deed conveying good title

and of the buyer to tender unpaid balance of the purchase price, are

CONCURRENT OBLIGATIONS

ii. Neither party can regard the other as in breach, or sue for breach, without FIRST

TENDER his or her own performance

iii. A tender is an offer to perform immediately, coupled with the ability to carry out

the offer

iv. TENDER MAY BE EXCUSED:

1. The other party has anticipatorily repudiated the K

2. even without repudiation, it is apparent that the other party will not

perform or is obstructing the attempted tender

3. the other party‟s performance has become impossible (i.e., the vendor has

sold the property to another or his or her title is incurably defective)

g. Mutual Failure to Tender

i. If time is not of the essence and neither party tenders on agreed date, NEITHER IS

IN BREACH; the closing is automatically extended until one sets a date and

notifies the other

ii. IF A DATE IS SET LATER -> According to Miller, the notice of the date must be

REASONABLE

iii. If time IS of the essence, and neither party tenders on the date fixed for closing,

most courts suggest that BOTH PARTIES are DISHCARGED

v. Title to be Conveyed

1. How to Learn of the Quality of Seller‘s Title Being Conveyed:

a. TWO METHODS:

i. Title Opinion – obtain a written attorney‘s opinion as to the title; bases opinion on

search of official public records in county courthouse or review of an abstract (copy

or summary of instruments filed in courthouse)

ii. Title Report – obtain title reports from title insurance companies; bases report on

search of its own records (called ―title plant‖);

2. CASE – Laba v. Carey - MAIN PRINCIPLE: Where a purchaser agrees to take title subject to

easements and restrictive covenants of record which are not violated, that title is what the seller is

obligated to tender.

10

DOCSFORD

REAL ESTATE TRANSACTIONS OUTLINE