Daily
Development for Tuesday, June 10, 2003
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu
VENDOR/PURCHASER; EQUITABLE CONVERSION:
Where single person contracts to sell
property, and thereafter, prior to closing, marries, statutory rights of seller's spouse in marital residence
are preempted by the buyer's contract
rights due to doctrine of equitable conversion, and
seller is in deliberate breach of contract by
asserting the existence of the spouse's
rights.
Sunshine v. Del Sole, Sup. Ct., App. Div., No.
A-6280-01%1 (5/30/03)
Del Sole, while unmarried, contracted to sell her
residence to Sunshines. Subsequently,
before closing, Del Sole apparently reconciled with her
former spouse and they remarried. The newly
married couple apparently wished to
continue to reside in the home that was subject to the
contract, so Mrs. Del Sole's lawyer wrote
to Sunshine's lawyer asserting that, as of closing, husband "will have" an property interest in the
property and that he was unwilling to
execute a quitclaim deed.
New Jersey law provides that each spouse has a
property right of possession in the
marital residence, which right may not be released,
extinguished or alienated without the consent of both
spouses except by court
judgment.
The Sunshine's title company, given the assertion by
Mrs. Del Sole's lawyer of a property
interest in the husband, refused to insure the title
over that interest without a quitclaim from the
husband.
The Sunshines sued for specific performance. The
trial court awarded specific performance
and, pursuant to the statutory authority that a court
could extinguish any alleged possessory right in the
husband, the court declared any interest
that so existed to be extinguished.
On appeal: held: Affirmed.
The appeals court agreed with the reasoning and
conclusion of the trial court, but
elected to go a step further. The court concluded that,
having bound herself by contract to sell
the property to the Sunshines prior to her marriage, Mrs. Del Sole did not "own" a real estate interest
property at the time of her marriage
because, by the process of equitable conversion, the equitable title was held by the Sunshines.
Mrs. Del Sole's interest was nothing more
than a contract right to enforce the sale agreement and the technical legal title, subject to the "real"
ownership in the buyers.
Consequently, the statute did not apply to create an interest
in the husband, and there was nothing that had to be
extinguished.
The court also noted that when Mrs. Del Sole raised
the issue of her husband's claims in
order to thwart the delivery under the contract, she
was in deliberate breach of the agreement, and the
buyers were not limited to the rights in
the contract for failure of title, which the court
described as "limited remedies." Presumably the
contract contained a provision that
stated that in the event seller could not deliver good title,
the buyers were limited to the refund of their
earnest money deposit as their sole
remedy. The court noted that it was inappropriate in any
event to apply such a limitation in a
case like this. Assuming (contrary to the actual holding) that the husband's interests did present a title
obstacle, the limitation on damages would
not apply because the seller would have "deliberately or fraudulently engineered the issue."
Comment 1: As to the last hypothetical situation posed
by the court a recent New York case
concurs. See: 9 Brothers Building Supply v.
Buonamicia 751 N.Y.S.2d 35 (A.D. 2 Dept. 2002). (A
seller who fails to a make a good-faith
effort to and deliver clear title to real property
pursuant to the terms of a contract cannot benefit
from the contract's limitations on
seller's liability for seller's inability to clear title, and
the court will order seller's
performance.) This case is reported in the latest version of the ABA Quarterly Report on Current Developments
in Real Estate Law, which is now going to
press.
Comment 2: The editor likes this case because it
illustrates the almost infinite
flexibility of the equitable conversion doctrine, frequently
used by courts to protect contract
purchasers of real estate interests when their contract rights prove inadequate.
The doctrine basically recognizes the special nature
of real estate contracts. First,
because the subject matter of the contract usually is
unique, contract damages normally are not
satisfactory, and specific performance is
often most appropriate. Consequently, the buyer holding
the right of specific performance is, in effect, the
owner of the property even when no deed
has been delivered. Further, because real estate
contracts, by their nature, often involve a delay
between creation of the contract right
and actual completion of the contract, the "ownership" of
the buyer is recognized as subsisting during that
period of time, so long as specific
performance would be an appropriate remedy. Readers are encouraged to respond to or criticize this
posting.
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