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23. Should damages be awarded to the buyer?
The buyer quit possession of the land, stopped making payments on the contract, and demanded that the seller repay the amounts that the buyer had paid under the contract. After the seller refused the demand, the buyer sued the seller to recover damages for the seller's alleged breach of the contract.
The buyer entered into possession of the land. After making 10 of the 300 installment payments obligated under the contract, the buyer discovered that there was outstanding a valid and enforceable mortgage on the land, securing the payment of a debt in the amount of 25 percent of the purchase price that the buyer had agreed to pay. There was no evidence that the seller had ever been late in payments due under the mortgage, and there was no evidence of any danger of insolvency of the seller. The value of the land was then four times the amount due on the debt secured by the mortgage.
A seller who owned land entered into a valid written agreement to sell the land to a buyer by installment purchase. The contract stipulated that the seller would deliver to the buyer, upon payment of the last installment due, «a warranty deed sufficient to convey a fee simple title.» The contract contained no other provision that could be construed as referring to title.
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A is incorrect. It is true that in the absence of a contrary express agreement there is an obligation to convey a marketable title. A mortgage is an interest held by a third party and does make title unmarketable. The time for title to be marketable, however, is at the closing, when the seller is to provide the warranty deed. The buyer has an obligation to make 290 more payments before the time for closing arises. A buyer may be able to object to title earlier only if it appears unlikely that the seller will be able to provide a marketable title at the time of closing. Under these facts, the seller has made all mortgage payments timely. The amount of the mortgage debt is 25% of the purchase price the buyer will pay, and the land is four times more valuable than the debt owed. It is most likely that title will be marketable at the time when all of the buyer's payments have been made. If not, that is the time for the buyer to object.
B is incorrect. An installment purchase contract is often treated as a mortgage, and on default there must be a foreclosure of the buyer's equity of redemption. In this case, the buyer may have stopped making payments, but the seller has not yet sought to enforce the installment purchase contract. Because it is the buyer who is seeking damages, the buyer's equity of redemption is not at issue.
C is incorrect. This answer correctly concludes that damages will not be awarded but misstates the reasoning for this conclusion. An installment purchase contract is a seller's security device. Payments are made over time, and when all payments have been made, a deed will be given. Title does not have to be marketable until all payments have been made. An existing mortgage lien does make the title unmarketable, but it is likely that the lien will have disappeared when the deed is to be given. A buyer may be able to object earlier only if it appears unlikely that the seller will be able to provide a marketable title at the time of closing. In this case, the seller has made all mortgage payments timely. The amount of the mortgage debt is 25% of the purchase price the buyer will pay, and the land is four times more valuable than the debt owed. It is most likely that title will be marketable at the time when all of the buyer's payments have been made under the agreement. If not, that is the time for the buyer to object.