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

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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