Business Law Case Briefs Essay

IRAC the 3 short cases , the cases to read are in the file below. double space, 2-3 page total.

Harding v. Ja Laur (pg 3)

Engelhart v. Kramer (pg 9)

Reed v. King (second file)

Part IV: Transfers
Rules about transferring property are created by law. There are only certain ways
people can rearrange property relations. Some rearrangements happen even if the
people involved don’t want them, and some don’t happen even if the people involved
do want them. Knowing the rules is key to understanding which transfers work and
why.
There are several methods of transferring property. The key voluntary methods are
gifts, sales, and transfers at death, which can be divided into transfers by will (also
known as transfer by devise) and transfers by operation of law because of the
decedent’s intestacy (dying without a will). We have already seen examples of transfers
at death in our examination of the estates system. We will see more shortly in our
chapter on Wills and Intestacy.
In this part of the course, we will focus primarily on transfers of interests in real
property by sale, and the elaborate legal infrastructure established to support such
transactions. But we will begin our study of voluntary transfers with the law of gratuitous
transfers, specifically gifts of personal property. With this most simple of transfers, we
will lay a foundation for understanding how the law of transfers tries to respect and
facilitate the intent to consensually transfer property while guarding against fraud and
mistake, all while being mindful of public policy interests that may compete with the
private interests of some property owners.
1
Chapter 9: Land Transactions
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Chapter 9: Land Transactions
In 1250, to transfer ownership of land, the grantor and grantee would physically go to the
land. The grantor would physically (or perhaps metaphysically) put the grantee in possession
by handing over a clod of dirt. The grantee would swear homage to the grantor, and the grantor
would swear to defend the grantee’s title. This was a public ceremony, performed in front of
witnesses who could later be called on to recall what had happened if necessary. In contrast,
written conveyances—called “charters”—were treated with skepticism; they were considered
an inferior form of evidence because of the risk of forgery.
In the seven and a half centuries since, this attitude has completely flipped. Now, land
transactions are paper transactions: the Statute of Frauds almost always requires a written
conveyance—now called a “deed”—to transfer an interest in real property. Transfers by
operation of law (primarily through adverse possession and intestacy) are very much the
exception. In addition, land transactions are influenced by the common law’s attitude that land
is of distinctive importance, so that parties dealing with it need especial clarity about their
rights, and by the fact that land transactions are often high-stakes, with hundreds of thousands,
millions, or sometimes even billions of dollars at issue. This section focuses on the written
instruments at the heart of land transactions. It considers when a deed is required, when a
deed is effective, how deeds are interpreted, and what they promise about the property and
the interest being conveyed.
Indiana Code Title 32, Art. 21
§ 32-21-1-1—Requirement of written agreement; agreements or promises covered
(a) This section does not apply to a lease for a term of not more than three (3) years.
(b) A person may not bring any of the following actions unless the promise, contract, or
agreement on which the action is based, or a memorandum or note describing the promise,
contract, or agreement on which the action is based, is in writing and signed by the party
against whom the action is brought or by the party’s authorized agent: …
(4) An action involving any contract for the sale of land.
§ 32-21-1-13—Conveyance of land; written deed required
Except for a bona fide lease for a term not exceeding three (3) years, a conveyance of land or
of any interest in land shall be made by a deed that is:
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(1) written; and
(2) subscribed, sealed, and acknowledged by the grantor … or by the grantor’s attorney.
Questions
1. What is the difference between these two sections? Why are both necessary?
2. Consider the following sequence of text messages:
A: still want apt 4C @ 321 sesame st?
B: $450,000 ok?
A: deal. 🙂 -A
B: yay! kthx bai
Can either of the parties treat this as an enforceable contract for the sale of land?
Harding v. Ja Laur
315 A.2d 132 (Md. Ct. Spec. App. 1974)
GILBERT, Judge: …
The bill alleged that a deed had been obtained from the appellant through fraud practiced
upon her by the agent of Ja Laur Corporation. The bill further averred that the paper upon
which the appellant had affixed her signature was “falsely and fraudulently attached to the first
page of a deed identified as the same deed” through which the appellee, Ja Laur Corporation,
and its assigns, the other appellees, claim title. …
There is no dispute that the appellant signed some type of paper. Her claim is not that her
signature was forged in the normal sense, i.e., someone copied or wrote it, but rather that the
forgery is the result of an alteration. Mrs. Harding alleges that at the time that she signed a
blank paper she was told that her signature was necessary in order to straighten out a boundary
line. She represents that she did not know that she was conveying away her interest in and to
a certain 1517 acres of land in Montgomery County.
The parcel of land that was conveyed by the allegedly forged deed is contiguous to a large tract
of real estate in which Ja Laur and others had “a substantial interest.” It appears from the bill
that Mrs. Harding’s land provided the access from the larger tract to a public road, so that its
value to the appellees is obvious. Mrs. Harding excuses herself for signing the “blank paper”
by averring that she did so at the instigation of an attorney, an agent of Ja Laur, who had “been
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a friend of her deceased husband, and … represented her deceased husband in prior business
and legal matters, and that under [the] circumstances [she] did place her complete trust and
reliance in the representations made to her …” by the attorney. The “blank paper” was signed
“on or about April 2, 1970.” Mrs. Harding states that she did not learn of the fraud until the
“summer of 1972.” At that time an audit, by the Internal Revenue Service, of her deceased
husband’s business revealed the deed to Ja Laur, and its subsequent conveyance to the other
appellees.
In Smith v. State, 256 A.2d 357, 360 (1970), we said that:
Forgery has been defined as a false making or material alteration, with intent to defraud,
of any writing which, if genuine, might apparently be of legal efficacy or the foundation
of a legal liability. More succinctly, forgery is the fraudulent making of a false writing
having apparent legal significance. It is thus clear that one of the essential elements of
forgery is a writing in such form as to be apparently of some legal efficacy and hence
capable of defrauding or deceiving.
Perkins, Criminal Law ch. 4, § 8 (2d ed. 1969) states, at 351:
A material alteration may be in the form of (1) an addition to the writing, (2) a
substitution of something different in the place of what originally appeared, or (3) the
removal of part of the original. The removal may be by erasure or in some other
manner, such as by cutting off a qualifying clause appearing after the signature.
A multitude of cases hold that forgery includes the alteration of or addition to any instrument
in order to defraud. That a deed may be the subject of a forgery is beyond question.
The Bill of Complaint alleges that the signature of Mrs. Harding was obtained through fraud.
More important, however, to the issue is whether or not the bill alleges forgery. In our view
the charge that appellant’s signature was written upon a paper, which paper was thereafter
unbeknown to her made a part of a deed, if true, demonstrates that there has been a material
alteration and hence a forgery. …
… A deed obtained through fraud, deceit or trickery is voidable as between the parties thereto,
but not as to a bona fide purchaser. A forged deed, on the other hand, is void ab initio. …
[T]he common law rule that a forger can pass no better title than he has is in full force and
effect in this State. A forger, having no title can pass none to his vendee. Consequently, there
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can be no bona fide holder of title under a forged deed. A forged deed, unlike one procured by
fraud, deceit or trickery is void from its inception.
…
In the instant case, the Bill of Complaint, for the reasons above stated, alleged a forgery of the
deed by which Ja Laur took title from Mrs. Harding. This allegation, if true, renders that deed
a nullity. Ja Laur could not have passed title to the other appellees, Macro Housing, Inc. and
Montgomery County. Those two appellees would therefore have no title to the land of Mrs.
Harding. …
Questions
1. What is the point of the distinction between forging a deed (sometimes called “fraud
in the factum”) and tricking someone into signing it (“fraud in the inducement”)? As
between the fraudster and the victim, is there a significant difference? What about once
third parties get involved?
2. Mrs. Harding signs a blank piece of paper, which Ja Laur then staples to a deed.
Forgery? What if she signs the same piece of paper after it is stapled to the deed? Do
the policy reasons for distinguishing forgery from fraud provide a convincing reason
to treat these cases differently?
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New York Real Property Law § 258
Short forms of deeds and mortgages.
The use of the following forms of instruments for the conveyance and mortgage of real
property is lawful, but this section does not prevent or invalidate the use of other forms:
DEED WITH FULL COVENANTS.
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Statutory Form A (Individual)
This indenture, made the …… day of …….. nineteen hundred and ……, between ………….(insert
residence) party of the first part, and ………….. (insert residence) party of the second part,
Witnesseth, that the party of the first part, in consideration of ………… dollars, lawful money of
the United States, paid by the party of the second part, does hereby grant and release unto the
party of the second part, ……….. and assigns forever, all ……… (description), together with the
appurtenances and all the estate and rights of the party of the first part in and to said premises,
To have and to hold the premises herein granted unto the party of the second part, …………
and assigns forever. And said ………… covenants as follows:
First. That said ………… is seized of said premises in fee simple, and has good
right to convey the same;
Second. That the party of the second part shall quietly enjoy the said premises;
Third. That the said premises are free from incumbrances;
Fourth. That the party of the first part will execute or procure any further
necessary assurance of the title to said premises;
Fifth. That said ………… will forever warrant the title to said premises.
In witness whereof, the party of the first part has hereunto set his hand and seal the day and
year first above written…
BARGAIN AND SALE DEED.
Statutory Form C. With Covenant against Grantor. (Individual)
This indenture, made the …… day of ……, nineteen hundred and ……, between …………., (insert
residence) party of the first part, and …………., (insert residence) party of the second part:
Witnesseth, that the party of the first part, in consideration of …………. dollars, lawful money
of the United States, paid by the party of the second part, does hereby grant and release unto
the party of the second part, …………. and assigns forever, all …………. (description), together
with the appurtenances and all the estate and rights of the party of the first part in and to said
premises,
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To have and to hold the above granted premises unto the party of the second part, ………….
and assigns forever. And the party of the first part covenants that he has not done or suffered
anything whereby the said premises have been incumbered in any way whatever.
In witness whereof, the party of the first part has hereunto set his hand and seal the day and
year first above written….
QUITCLAIM DEED.
Statutory Form D. (Individual)
This indenture, made the ……. day of ……….., nineteen hundred and ………., between ……………,
(insert residence), party of the first part, and ………….., (insert residence), party of the second
part:
Witnesseth, that the party of the first part, in consideration of ……….. dollars, lawful money of
the United States, paid by the party of the second part, does hereby remise, release, and
quitclaim unto the party of the second part, …………… and assigns forever, all (description),
together with the appurtenances and all the estate and rights of the party of the first part in
and to said premises.
To have and to hold the premises herein granted unto the party of the second part, …………
and assigns forever.
In witness whereof, the party of the first part has hereunto set his hand and seal the day and
year first above written….
Notes and Questions
1. What is the difference between the first and the second of these deed forms? Why
would a grantee ever accept a quitclaim deed?
2. The “usual covenants” that one finds in a general warranty deed (or “Deed with Full
Covenants” per the New York statute) are as follows (though they may be combined
in different ways and there is some state to state variation):
• Covenant of seisin—The grantor covenants that he owns the estate or
interest that he purports to convey.
• Covenant of right to convey—The grantor covenants that he has the
power to make the conveyance. This covenant is satisfied if the grantor
has title and is under no disability, or if he is acting as trustee or agent
for the owner.
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• Covenant against encumbrances—The grantor covenants that there are
no easements, covenants, mortgages, liens, or other encumbrances on
the property.
• Covenant of quiet enjoyment—The grantor covenants that the grantee
will not be disturbed in possession or enjoyment of the property by a
third party’s lawful assertion of superior title.
• Covenant of general warranty—The grantor covenants that he will
defend on behalf of the grantee any lawful claims existing at the date of
conveyance, and will compensate the grantee for any loss sustained by
the assertion of superior title. Note that for all practical purposes, this
covenant and the covenant of quiet enjoyment amount to the same
thing.
• Covenant of further assurances—The grantor covenants to perform
whatever acts are reasonably necessary to perfect the purchaser’s title, if
it turns out to be imperfect.
Our next case investigates the scope of these covenants.
Engelhart v. Kramer
570 N.W.2d 550 (S.D. 1997)
GILBERTSON, Justice.
A $34,800 judgment was rendered against Crystal Kay Kramer based on violation of SDCL
ch 43-4 and for failure to properly disclose a defect in the home she sold to Karen Engelhart.
The case was tried without a jury before the Second Judicial Circuit Court. Kramer appeals
the award claiming that Engelhart did not show that Kramer failed to meet the required
standard in completing the seller’s property disclosure statement. 1 We affirm.
FACTS AND PROCEDURE
In May of 1991, Crystal Kay Kramer purchased a home in Sioux Falls, South Dakota for
$35,000. Over the next few years Kramer made several improvements. Four days prior to
putting the home on the market, in September, 1993, Kramer enlisted the support of friends
and family and began an extensive cleaning of the basement. There were several large cracks
Kramer also argues that the trial court erred in finding Kramer’s actions constituted fraud and deceit. In light of our
disposition of the case on the disclosure requirement issue, the fraud and deceit issue need not be addressed.
1
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in the basement’s cement walls and pieces of various sizes had fallen off. They removed old
sheet rock and put up wood paneling over the basement walls. The basement project was
memorialized by Kramer with several photographs depicting the before, during and after
condition of the walls.
During this period Karen Engelhart was searching for a home commensurate with her income
level. Engelhart was a first-time home buyer and was assisted by Dorothy Ecker, a real estate
agent. Engelhart viewed Kramer’s home, became interested, and then decided to purchase it.
Kramer was represented by Shirley Ullom, a Century 21 Advantage, Inc. real estate agent.
Kramer completed the detailed “property condition disclosure statement” form required by
SDCL 43-4-44. Part two of the form required the seller to disclose certain structural
information. Specifically, question 2 asked “Have you experienced water penetration in the
basement … within the past two years?” Kramer replied, “Small amt of H20 penetration in
NW + NE corners [when it] rains.” (emphasis added). In answering question 3 “[a]re there
any cracked walls or floors?” Kramer responded “basement floor, some spots in basement
walls, East bedroom walls.” Under § 5, Miscellaneous Information, Kramer was required to
disclose any additional problems that were not previously mentioned. Kramer offered,
“basement cement walls have some crumbling, behind paneling, basement floor cracked [and] uneven
in spots.” (emphasis added).
The trial court found that Engelhart relied upon, among other things, Kramer’s disclosure
statement with regard to the condition of the basement walls and that Engelhart believed
“some spots” and “some crumbling” to mean the problems were minimal. Kramer allegedly
offered to remove the paneling to expose the basement walls but the trial court concluded that
the offer was “a gambit, or a bluff … without any real intention of performing” and that the
typical buyer in Engelhart’s position would be “reluctant to remove paneling from someone
else’s house.” Kramer admitted taking photographs before installing the paneling and that
showing the photos to a potential purchaser would have been easier than removing it. Kramer
could not explain why she did not offer the photos.
Engelhart purchased the property in October 1994. In March of 1995, she discovered water
seepage through the south wall of the basement. The paneling was removed and water was
discovered running through cracks in the south wall. Also noted were several other large
cracks, including a large horizontal crack running around the basement. Engelhart hired a
structural engineer, Chester Quick (Quick) to diagnose the problem. Quick issued a report in
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which he found the basement walls “very badly cracked” and testified that the cement had
“leeched out” which allowed dirt and water to pass into the basement. 2
Further, Quick noted that the concrete was showing “considerable disintegration especially at
the south wall” which was not repairable. He concluded that the foundation had to be replaced
and that “As bad as [the walls] are cracked they could collapse at any time.” When asked
whether the disclosure statement adequately described the condition of the basement Quick
testified that, although accurate in part, “some crumbling” did not adequately describe the
damage that existed behind the paneling.
Engelhart brought suit against Kramer based upon misrepresentations made in the disclosure
statement. The trial court ruled in favor of Engelhart on failure to comply with South Dakota’s
Disclosure Statutes and fraud. Kramer appeals the $34,800 award entered against her. …
LEGAL ANALYSIS AND DECISION
Whether Kramer failed to complete the disclosure statement in good faith as required by
SDCL Ch 43-A?
In 1993 the South Dakota legislature enacted specific requirements for disclosures in certain
real estate transfers. SDCL §§ 43-4-38 to -44. SDCL 43-4-38 provides:
The seller of residential real property shall furnish to a buyer a completed copy of the
disclosure statement before the buyer makes a written offer. If after delivering the
disclosure statement to the buyer or the buyer’s agent and prior to the date of closing
for the property or the date of possession of the property, whichever comes first, the
seller becomes aware of any change of material fact which would affect the disclosure
statement, the seller shall furnish a written amendment disclosing the change of
material fact.
SDCL 43-4-41 requires that “The seller shall perform each act and make each disclosure in
good faith.” SDCL 43-4-40 absolves sellers of liability for defects in certain circumstances by
providing:
2 Quick
testified that the wall was “a mixture of sand, cement [which holds the mixture together], and usually some rock,
and over time with excess water and cracks the cement ‘leeches out’ of the mixture and you wind up with nothing but
sand and rock.”
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Except as provided in § 43-4-42, a seller is not liable for a defect or other condition in
the residential real property being transferred if the seller truthfully completes the
disclosure statement.
(Emphasis added). The disclosure form mandated by SDCL 43-4-44 establishes that beyond
the above obligations, there is no warranty passing from the seller to the buyer:
THIS STATEMENT IS A DISCLOSURE OF THE CONDITION OF THE
ABOVE DESCRIBED PROPERTY…. IT IS NOT A WARRANTY OF ANY KIND
BY THE SELLER OR ANY AGENT REPRESENTING ANY PARTY IN THIS
TRANSACTION AND IS NOT A SUBSTITUTE FOR ANY INSPECTIONS OR
WARRANTIES THE PARTIES MAY WISH TO OBTAIN.
(Capitals in original).
Kramer relies on SDCL 43-4-40 and contends that even if her description of the basement
was inadequate or under Kramer’s phraseology, an innocent misrepresentation, that it was
truthful nonetheless and therefore no liability should attach. It is important to note that in
SDCL 43-4-40, the terms “truthfully” and “complete” do not operate independently to the
exclusion of the other. A plain reading of the terms together evince a more exacting standard
than truth alone.
Until today, this Court has not addressed the scope of the disclosure statutes at issue. Of
central concern to our resolution is what is required by the term “good faith,” in the absence
of a definition in SDCL 43-4-41, and whether the disclosure of “some crumbling” violates
that standard? We recognize that the concept of “good faith” may, at times, seem as elusive
as the “reasonableness” that is spoken of in the law of torts. However, there exists several
sources from which meaning can be found.
Statutory guidance can be found at SDCL 2-14-2(13) which states that “good faith” is:
an honest intention to abstain from taking any unconscientious advantage of another,
even through the forms or technicalities of law, together with an absence of all
information or belief of facts which would render the transaction unconscientious;
Black’s Law Dictionary 693 (6th ed 1990) offers the following:
Good faith is an intangible and abstract quality with no technical meaning or statutory
definition, and it encompasses, among other things, an honest belief, the absence of
malice and the absence of design to defraud or to seek an unconscionable advantage….
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In common usage this term is ordinarily used to describe that state of mind denoting
honesty of purpose, freedom of intention to defraud, and, generally speaking, means
being faithful to one’s duty or obligation.
Case law decided under different contexts has provided additional meaning to the term “good
faith” to include “honesty in fact,” Garrett v. BankWest, Inc., 459 N.W.2d 833, 841 (S.D.1990)
(contractual context; meaning of good faith “varies with the context and emphasizes
faithfulness to an agreed common purpose and consistency with the justified expectations of
the other party”), and an “honest belief in the suitability of the actions taken.” B.W. v. Meade
Co., 534 N.W.2d 595, 598 (S.D.1995), (in the context of reporting and investigating child
abuse). In the case now before us the trial court properly relied upon the definition found in
SDCL 2-14-2(13).
Kramer contends that since she described the condition of the basement walls as having “some
spots” and “some crumbling,” she fulfilled her duty of good faith by truthfully completing the
Disclosure Statement. Kramer argues that to hold otherwise would, in effect, result in a strict
liability standard on sellers of real estate. We disagree.
SDCL 43-4-42 provides:
A transfer that is subject to §§ 43-4-37 to 43-4-44, inclusive, is not invalidated solely
because a person fails to comply with §§ 43-4-37 to 43-4-44, inclusive. However, a
person who intentionally or who negligently violates §§ 43-4-37 to 43-4-44, inclusive, is liable
to the buyer for the amount of the actual damages and repairs suffered by the buyer as
a result of the violation or failure. A court may also award the buyer costs and attorney
fees. Nothing in this section shall preclude or restrict any other rights or remedies of
the buyer.
(Emphasis added).
Kramer relies on Amyot v. Luchini, 932 P.2d 244 (Alaska 1997), for the proposition that a
disclosure statement can be truthful yet not “perfect” and that “innocent misrepresentations”
do not violate good faith. However, it must be noted that Kramer’s representation of the issue
to this Court incorrectly assumes that the misrepresentation of the basement walls was found
merely innocent by the trial court. To the contrary, the trial court specifically found that the
Kramer’s paneling of the walls four days before putting the house on the market was not
“solely for aesthetic purposes” and was completed deliberately3 in an attempt to hide their
The trial court relied on Kramer’s deposition and trial testimony in that when she purchased the house “[t]he walls were
crumbling with cracks in places,” that the residue she had discovered on the basement floor was “Part of the basement
3
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true condition. Kramer’s colorful attempt to characterize her description of the basement as
an innocent misrepresentation is inaccurate.
In 1993, Alaska enacted residential real property disclosure statement statutes (substantially
similar to that of South Dakota enacted the same year). Alaska Stat. §§ 34.70.010 to 34.70.090
(Michie 1996). 4 The Amyot court stated:
Prior to the enactment of [the mandatory disclosure statutes], sellers of real property
were not required to make any representations about the property. However, sellers
were strictly liable for those representations they made. (Citation omitted.) Under the
disclosure statute a seller is now required to make representations about a wide range
of the property’s features and characteristics. We conclude that the legislature intended
to offset the seller’s increased disclosure responsibilities by the lower liability standard
for misrepresentations.
Amyot, 932 P.2d at 246.
We agree with the Amyot court and hold that strict liability is not the requisite standard under
South Dakota’s disclosure statutes. A plain reading of SDCL 43-4-42 tells us that liability will
not attach unless an intentional or negligent violation occurs. The legal maxim “expressio unius
est exlusio alterius” means “the expression of one thing is the exclusion of another.” Black’s Law
Dictionary 581 (6th ed.1990). The maxim is a general rule of statutory construction. Applying
the general rule to SDCL 43-4-42, we find the language “intentionally or … negligently” is
exclusive and negates strict liability.
It is fair to presume that sellers know the character of the property they convey. At present,
when Kramer became aware of Engelhart’s concern over the basement she could have simply
shown the pictures of its true condition. Her failure to do so was unreasonable and amounts
to negligence. SDCL 43-4-42. It must be noted that Kramer admitted taking the photographs
before installing the paneling and that showing the photos would have been easier than
removing it. Kramer could not explain why she did not offer the photos.
wall … whatever makes up the wall was there in a pile” and further that Kramer admitted in her disclosure statement that
no water ever came in on the south wall.
4 The Alaska disclosure statutes did not define “good faith” but held that “good faith” envisioned an “honest and
reasonable belief.” Id. at 247. Amyot is distinguishable from the present facts in that the court held an “innocent
misrepresentation” did not violate the good faith standard. South Dakota does not attach liability in this context unless
the seller’s conduct amounts to an “intentional or negligent” violation the disclosure statutes. SDCL 43-4-42.
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We hold that with the adoption of South Dakota’s detailed disclosure statutes the doctrine of
caveat emptor has been abandoned in favor of full and complete disclosure of defects of which
the seller is aware. We are not inferring, as Kramer suggests, that a seller must possess the
expertise of a structural engineer to pass good faith muster. Nor are we suggesting that a seller
will be liable for defects of which she is unaware. Those claims are clearly disposed of in the
closing section of the mandated disclosure form of SDCL 43-4-44:
The Seller hereby certifies that the information contained herein is true and correct to
the best of the Seller’s information, knowledge and belief as of the date of the Seller’s
signature below…. THE SELLER AND THE BUYER MAY WISH TO OBTAIN
PROFESSIONAL ADVICE AND INSPECTIONS OF THE PROPERTY TO
OBTAIN A TRUE REPORT AS TO THE CONDITION OF THE PROPERTY
AND TO PROVIDE FOR APPROPRIATE PROVISIONS IN ANY CONTRACT
OF SALE AS NEGOTIATED BETWEEN THE SELLER AND THE BUYER
WITH RESPECT TO SUCH PROFESSIONAL ADVICE AND INSPECTIONS.
(Capitals in original). It is clear that, as per SDCL § 43-4-41 and 43-4-44, a seller’s “good faith”
is determined under a reasonable person standard.
Affirmed.
Questions
1. In Lucero v. Van Wie, 598 NW 2d 893 (S.D. 1999), the seller failed to provide the
statutorily required disclosure statement, but the contract of sale contained the
following clause:
The buyer acknowledges that she has examined the premises and the same are
in satisfactory condition and they accept the property in the “as-is” condition
….
This time, the South Dakota Supreme Court held that the buyer could not recover for
undisclosed defects in the property; she “entered into an enforceable contract and
purchased the property ‘as is,’ the result of which was to waive disclosure
requirements.” After Lucero, what do you expect happened to real estate sales contracts
in South Dakota? What do you expect the South Dakota courts will do in cases where
the sales contract contains an “as-is” clause but the buyer alleges that the seller
affirmatively lied about the condition of the property—e.g., “No, the roof has never
leaked.”
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2. In addition to the distinction between unknown defects and defects known to the
seller, some courts draw a distinction between latent and apparent defects. Only hidden
defects—e.g., rotting support beams in the walls—need to be disclosed, while readily
visible defects, or ones that a reasonable inspection could discover—e.g., nonworking
plumbing on the second floor—need not. The theory, at least, is that the buyer depends
on the seller to tell her about conditions she could not reasonably discover herself. But
isn’t there a connection between defects the buyer doesn’t know about and defects the
seller doesn’t know about, either? Cases like Engelhart are one thing, where the Seller
literally plasters (or at least panels) over the problem. But who should bear the loss if a
previously unknown sinkhole surprises everyone by swallowing up the back porch the
day after closing? Consider, in this regard, a seller who doesn’t know whether her
home’s attic walls contain asbestos insulation, and a buyer whose offer to buy the house
is contingent on drilling into the walls to confirm that they do not contain asbestos. If
you represented the seller, would you advise your client to accept this contingency?
3. What kinds of conditions must be disclosed? A leaky roof? A leaky faucet? The
presence of lead paint on the walls? The fact that a previous inhabitant of the home
was gruesomely murdered by a family member? That the homeowner regularly gave
“ghost tours” on which she pretended to tourists that the house was haunted? The fact
that a registered sex offender lives on the block? The fact that there is a municipal
garbage dump half a mile away?
4. In many states, new-home builders are required to give a non-waivable warranty of
habitability that substantially parallels the warranty of habitability required of landlords.
What might account for the decision to hold sellers of new houses to a higher standard
than sellers of existing houses? When should the statute of limitations on breach of
warranty claims start running? Should subsequent purchasers be able to sue the original
builder for breach of the warranty if the defects become apparent only after a resale?
Brush Grocery Kart, Inc. v. Sure Fine Market, Inc.
47 P.3d 680 (Colo. 2002)
JUSTICE COATS delivered the opinion of the court: …
In October 1992 Brush Grocery Kart, Inc. and Sure Fine Market, Inc. entered into a five-year
“Lease with Renewal Provisions and Option to Purchase” for real property, including a
building to be operated by Brush as a grocery store. Under the contract’s purchase option
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provision, any time during the last six months of the lease, Brush could elect to purchase the
property at a price equal to the average of the appraisals of an expert designated by each party.
Shortly before expiration of the lease, Brush notified Sure Fine of its desire to purchase the
property and begin the process of determining a sale price. Although each party offered an
appraisal, the parties were unable to agree on a final price by the time the lease expired. Brush
then vacated the premises, returned all keys to Sure Fine, and advised Sure Fine that it would
discontinue its casualty insurance covering the property during the lease. Brush also filed suit,
alleging that Sure Fine failed to negotiate the price term in good faith and asking for the
appointment of a special master to determine the purchase price. Sure Fine agreed to the
appointment of a special master and counterclaimed, alleging that Brush negotiated the price
term in bad faith and was therefore the breaching party.
During litigation over the price term, the property was substantially damaged during a hail
storm. With neither party carrying casualty insurance, each asserted that the other was liable
for the damage. The issue was added to the litigation at a stipulated amount of $60,000. … The
court then found that under the doctrine of equitable conversion, Brush was the equitable
owner of the property and bore the risk of loss. It therefore declined to abate the purchase
price or award damages to Brush for the loss.
Brush appealed the loss allocation, and the court of appeals affirmed on similar grounds. …
In the absence of statutory authority, the rights, powers, duties, and liabilities arising out of a
contract for the sale of land have frequently been derived by reference to the theory of
equitable conversion. This theory or doctrine, which has been described as a legal fiction, is
based on equitable principles that permit the vendee to be considered the equitable owner of
the land and debtor for the purchase money and the vendor to be regarded as a secured
creditor. The changes in rights and liabilities that occur upon the making of the contract result
from the equitable right to specific performance. Even with regard to third parties, the theory
has been relied on to determine, for example, the devolution, upon death, of the rights and
liabilities of each party with respect to the land, and to ascertain the powers of creditors of
each party to reach the land in payment of their claims.
The assignment of the risk of casualty loss in the executory period of contracts for the sale of
real property varies greatly throughout the jurisdictions of this country. What appears to yet
be a slim majority of states places the risk of loss on the vendee from the moment of
contracting, on the rationale that once an equitable conversion takes place, the vendee must
be treated as owner for all purposes. Once the vendee becomes the equitable owner, he
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therefore becomes responsible for the condition of the property, despite not having a present
right of occupancy or control. In sharp contrast, a handful of other states reject the allocation
of casualty loss risk as a consequence of the theory of equitable conversion and follow the
equally rigid “Massachusetts Rule,” under which the seller continues to bear the risk until
actual transfer of the title, absent an express agreement to the contrary. A substantial and
growing number of jurisdictions, however, base the legal consequences of no-fault casualty
loss on the right to possession of the property at the time the loss occurs. This view has found
expression in the Uniform Vendor and Purchaser Risk Act, and while a number of states have
adopted some variation of the Uniform Act, others have arrived at a similar position through
the interpretations of their courts. …
In Wiley v. Lininger, 204 P.2d 1083, [(1949)] where fire destroyed improvements on land
occupied by the vendee during the multi-year executory period of an installment land contract,
we held, according to the generally accepted rule, that neither the buyer nor the seller, each of
whom had an insurable interest in the property, had an obligation to insure the property for
the benefit of the other. We also adopted a rule, which we characterized as “the majority rule,”
that “the vendee under a contract for the sale of land, being regarded as the equitable owner,
assumes the risk of destruction of or injury to the property where he is in possession, and the
destruction or loss is not proximately caused by the negligence of the vendor.” Id. (emphasis
added). The vendee in possession was therefore not relieved of his obligation to continue
making payments according to the terms of the contract, despite material loss by fire to some
of the improvements on the property. … Those jurisdictions that indiscriminately include the
risk of casualty loss among the incidents or “attributes” of equitable ownership do so largely
in reliance on ancient authority or by considering it necessary for consistent application of the
theory of equitable conversion. Under virtually any accepted understanding of the theory,
however, equitable conversion is not viewed as entitling the purchaser to every significant right
of ownership, and particularly not the right of possession. As a matter of both logic and equity,
the obligation to maintain property in its physical condition follows the right to have actual
possession and control rather than a legal right to force conveyance of the property through
specific performance at some future date. See 17 SAMUEL WILLISTON, A TREATISE ON THE
LAW OF CONTRACTS § 50:46, at 457-58 (Richard A. Lord ed., 4th ed. 1990) (“[I]t is wiser to
have the party in possession of the property care for it at his peril, rather than at the peril of
another.”).
The equitable conversion theory is literally stood on its head by imposing on a vendee, solely
because of his right to specific performance, the risk that the vendor will be unable to
specifically perform when the time comes because of an accidental casualty loss. It is
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counterintuitive, at the very least, that merely contracting for the sale of real property should
not only relieve the vendor of his responsibility to maintain the property until execution but
also impose a duty on the vendee to perform despite the intervention of a material, no-fault
casualty loss preventing him from ever receiving the benefit of his bargain. Such an extension
of the theory of equitable conversion to casualty loss has never been recognized by this
jurisdiction, and it is neither necessary nor justified solely for the sake of consistency.
By contrast, there is substantial justification, both as a matter of law and policy, for not
relieving a vendee who is entitled to possession before transfer of title, like the vendee in Wiley,
of his duty to pay the full contract price, notwithstanding an accidental loss. In addition to
having control over the property and being entitled to the benefits of its use, an equitable
owner who also has the right of possession has already acquired virtually all of the rights of
ownership and almost invariably will have already paid at least some portion of the contract
price to exercise those rights. By expressly including in the contract for sale the right of
possession, which otherwise generally accompanies transfer of title, the vendor has for all
practical purposes already transferred the property as promised, and the parties have in effect
expressed their joint intention that the vendee pay the purchase price as promised. …
In the absence of a right of possession, a vendee of real property that suffers a material casualty
loss during the executory period of the contract, through no fault of his own, must be
permitted to rescind and recover any payments he had already made. …
Here, Brush was clearly not in possession of the property as the equitable owner. Even if the
doctrine of equitable conversion applies to the option contract between Brush and Sure Fine
and could be said to have converted Brush’s interest to an equitable ownership of the property
at the time Brush exercised its option to purchase, neither party considered the contract for
sale to entitle Brush to possession. Brush was, in fact, not in possession of the property, and
the record indicates that Sure Fine considered itself to hold the right of use and occupancy
and gave notice that it would consider Brush a holdover tenant if it continued to occupy the
premises other than by continuing to lease the property. The casualty loss was ascertainable
and in fact stipulated by the parties, and neither party challenged the district court’s
enforcement of the contract except with regard to its allocation of the casualty loss. Both the
court of appeals and the district court therefore erred in finding that the doctrine of equitable
conversion required Brush to bear the loss caused by hail damage.
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Notes and Questions
1. Why is the risk of loss during the executory period even a thing? Why would the parties
leave time between signing a contract of sale and closing? Why not just hand over a
deed on the spot?
2. If the grocery store had been damaged by hail during the five-year lease preceding the
sale, who would have borne the risk of loss? Would it matter whether Brush had taken
possession of the property? Who bears the risk of loss if Brush owns a grocery store
subject to Sure Fine’s mortgage? Does it matter whether Colorado follows the title or
lien theory of mortgage.
Page 20 of 20
How to Brief or IRAC a case:
Issue:
A good issue statement includes the party names, the name of the rule
of law the brief is analyzing, and a key fact. What is the issue before the court?
What Problem is the court trying to solve? The issue should be one or two
sentences, state the party names and the relevant legal terms.
Rule:
The rule is the law that governs the outcome of the case. It should be
stated as a general principle and not include any party names or facts. The
rule should be stated as a list or an outline- not in paragraph form.
Application:
The application is a discussion of how the rule applies to the facts of a case.
The application shows how you can analyze arguments on both sides and
is the most important skill you will learn. The application is normally paragraphs long.
It should be a written debate – not simply a statement of the conclusion. Whenever possible,
present both sides of any issue.
Conclusion:
What was the result of the case? Did the appellate or supreme court affirm,
reverse or reverse and remand the lower court’s decision? The case gives you a background
of the facts along with the judge’s reasoning and conclusion. When you brief cases,
you are summarizing the judge’s opinion.