Daily Development for
By: Patrick A.
Randolph, Jr.
Elmer F. Pierson Professor of
Of Counsel: Blackwell Sanders Peper Martin
Kansas City,
prandolph@cctr.umkc.edu
VENDOR/PURCHASER; SELLER'S REMEDIES; SPECIFIC PERFORMANCE:
Land-sales contract signed by only three of four owners is not appropriate for
specific performance remedy against buyer, due to lack of mutuality, and the
transfer of the property to a third party by all the owners does not effectuate
a transfer of the contract right that resolves this problem..
Ex Parte
A.B./Wildwood Ltd. Partnership, 793 So.2d 784 (
The court trashes this agreement thirty ways from Sunday,
but we will sort out only a few of the problems:
The original contract was executed by the buyer, but by only
three of four owners as sellers.
Thereafter, all four of the owners (without the knowledge of the buyer)
transferred title to the property to an LLC owned by two of the original owners
and their accountant. Seven months
later, the LLC sued the buyer for specific performance under the original
contract.
The trial court refused to grant specific performance, but
the court of appeals reversed, concluding that the transfer to the LLC and the
statement in the lawsuit that all four owners agreed to the agreement
established a specifically enforceable agreement.
On appeal to the Alabama Supreme Court::
Held: reversed. The contract is not
amenable to specific enforcement because of lack of mutuality.
The Supreme Court, quoting from Pomeroy on Equity
Jurisprudence, noted that the requirement of mutuality of remedy was more than
a more formality here. How could the court
effectively oversee the carrying out of the agreement when one of the owners of
the property was not bound to perform?
The court acknowledged that the buyer would have had an
action against the sellers for damages for breach of contract had they been
unable to perform, but that neither the buyer nor the court would have been
able to compel performance by the missing seller.
Although the Court of Appeals had stressed that the owners
now conceded that they were bound, the Supreme Court dismissed this statement
by the sellers as a self serving declaration that did not establish rights
under the contract itself. Apparently,
the court here was concluding that once the contract has been repudiated by the
buyer, the missing seller cannot then affirm it.
In an interesting further twist, the court dealt with the
argument that the problems with the original contract were no longer material
because all four of the sellers had transferred their interests to the
LLC. The LLC argued (apparently) that this transfer
constituted an assignment of the sale rights of all of the sellers, and thus a
confirmation, prior to suit and prior to rejection by the buyer, of the
contract.
Only problem, noted the court, was
that a simple transfer of the property from the owners to the LLC was in fact
not an assignment of the original sale contract, but rather an "outright
violation" of that contract. There
was no express assignment of any kind.
The majority went on to say that the contract could not be
assigned in any event, because the buyer was entitled to look to the original
sellers and their pockets for recovery in the event of breach of the warranties
or other provisions of the sale agreement.
One concurring judge opined that the buyer was entitled for
relief for this reason alone, because by that transfer the sellers had
repudiated the contract.
Another concurring judge was of the view that the contract
could be assigned, but that such assignment, under the Statute of Frauds, would
have to be in writing, since the contract itself was subject to the Statute. Of
course, there was no written assignment.
Comment 1: The court
was certainly correct in holding that where a seller is not in a position to
deliver good title, that seller cannot demand performance by the seller. The original three sellers could not enforce
the contract by themselves, therefore.
Although there were plenty of other problems here, it does seem
incredible that the parties elected to go to trial on the theory of specific
performance without ever having the fourth seller sign. Apparently she was in favor of the carrying
out of the contract, since she did sign the deed to the LLC.
Comment 2: Is it good law to say that a contract of sale cannot be assigned? The editor believes that the court overstates the case when it stresses the concern that if the contract were assignable the buyer would lose valuable rights against the seller. Certainly a contract seller can transfer the right to receive the consideration under the contract, and can delegate responsibilities to perform certain responsibilities under the contract, without the seller escaping the ultimate responsibility for nonperformance of these responsibilities. The editor prefers the position on the issue taken by the concurring judges.
Readers are urged to respond, comment, and
argue with the daily development or the editor's comments about it.
Items in the Daily Development section
generally are extracted from the Quarterly Report on Developments in Real
Estate Law, published by the ABA Section on Real Property, Probate & Trust
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