Daily Development for
Wednesday, September 24, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

VENDOR/PURCHASER; WARRANTY OF TITLE: Husband who owns property in joint tenancy with wife and unconditionally contracts to sell to third party is liable to purchaser in damages if wife's consent is not obtained; seller cannot unilaterally terminate contract based on purchaser's failure to tender proper performance by closing date where seller also has failed to perform.

Warner v. Denis, 933 P.2d 1372 (Haw. Ct. App. 1997).

The defendant sellers, a husband and wife, owned a certain lot in joint tenancy, and the husband contracted with the plaintiff purchasers for the sale of the land. The defendant husband was to finance plaintiffs' purchase, subject to the identification of an additional purchasing partner. At no point did the wife consent to or authorize the sale of the property. Certain minor encroachments on the lot were discovered, and the defendant husband agreed to survey the property and submit the encroachments to plaintiffs for their review.

When the date for closing arrived, the defendant husband had not taken any steps to complete the survey, and the plaintiffs had not identified a partner, so the parties agreed to extend the closing date. When the extended closing date arrived, plaintiffs still had not notified the escrow agent of the identity of the new partner, nor had the defendant husband yet taken any steps regarding the survey. Soon thereafter, the defendant husband received and accepted a higher cash offer from a third party, and an escrow account was opened.

Unaware of this new offer and acceptance, plaintiffs continued in their efforts to obtain and identify a purchasing partner. The original escrow agent faxed to the plaintiffs a proposed agreement concerning the resolution of the encroachments, which was signed by plaintiffs, and the plaintiffs notified the defendant husband in writing of the identity of the new partner and that they were ready, willing, and able to close the transaction immediately, pending resolution of the encroachment issue. At about this same time, the defendant husband notified the escrow agent that he no longer wished to proceed with the sale to plaintiffs and directed that the escrow account be closed. Immediately thereafter, the defendant husband notified the plaintiffs in writing of his decision to terminate the transaction, and both defendants instructed the escrow agent to refund plaintiffs' deposit money. Still unaware of defendants' sale of the property to a third party, plaintiffs filed suit, seeking specific performance and damages, among other things. The sale of the property to the third party closed prior to trial, and the specific performance claim was dismissed. A four-day jury trial resulted in a judgment in favor of the defendants, and plaintiffs appealed.

The Hawaii Court of Intermediate Appeals reversed, holding that a party may contract to sell land that it does not yet own, its only duty being to provide marketable title at closing. Here, because the husband contracted unconditionally to sell the property he owned with his wife, knowing he had to obtain her consent or authorization to consummate, he became bound to obtain such consent or authorization or suffer in damages if he was unable to do so. Additionally, the encroachment issue and its resolution imposed a duty upon the defendant husband to obtain the required survey, and he had failed to fulfill this duty.

Thus, even though the contract between the parties contained a standard "time is of the essence" clause,the defendant husband did not have the right to terminate or rescind the contract unilaterally for lapse of time because such a right only arises in a party who is without fault on his own part. Finally, where both parties were aware of the encroachment issue, the defendant husband had failed to fulfill his obligation with respect to the issue, and the contract was silent on the plaintiffs' rights in this regard, the nonperformance by the defendant husband created an implied extension of the closing date, at least until the defendant husband complied with his obligations.

Comment 1: Sometimes, of course, one spouse will be viewed as the express or implied agent of a co-owner spouse in contracting to sell land. But here, apparently, the wife's name actually appeared in the signature blocks on the contracts, suggesting that the sellers intended that she demonstrate by her signature, and not by her husband's signature, her assent to the sale. The court doesn't discuss this issue, but indicates that the wife had neither expressly or impliedly authorized her husband to commit to the sale on her behalf.

Comment 2: The buyers, of course, could see that the wife's signature was not on the contract. It is interesting to note the construction the court holds that they are entitled to make - that if the wife never signed, the husband was liable in damages. An alternate construction, of course, is that the contract was not complete, and that the buyers should have assumed that there was no contract until they had the wife's signature.

But some other cases have held that a non-executing spouse can render a contract specifically enforceable by later signing it - suggesting, as this court does, that the better interpretation of the situation is that the signing spouse has obligated himself or herself to produce the other spouse's signature by closing, and that there is a deal on the signature of one seller.

Comment 3: Is the above construction of this situation - clearly the majority rule - the best rule? Would there be more clarity in these situations if the courts concluded that there was no deal at all until both spouses signed? Would this lead buyers to demand both signatures at an earlier point, thus avoiding difficult situations involvement disagreement within the seller's group? Note that in virtually every state in the nation, the spouse's signature or evidence of a valid prenuptial agreement would be necessary in order to deliver clear title eventually. Why not have a rule that would compel complete agreement at the time of signing (except where the parties contract otherwise)?

Comment 4: Should the same rules be applied to other cotenants? If one member of an ownership group executes a sale agreement, and the others have not, wouldn't a sensible construction of the situation be that the executing party should be viewed as bound only when and if the buyer obtained the signatures of the other owners?

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