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26. Who will likely prevail?
The investor sued the cousin for specific performance.
Two weeks after the cousin's birthday, the man died. Under his valid will, the man devised the farm to the cousin. Within a week, the executor of the man's estate gave the cousin an executor's deed to the farm in compliance with state law. The investor promptly learned of this transfer and demanded that the cousin convey the farm to her. The cousin refused.
The man failed to convey the farm to the cousin on her birthday. One week after the cousin's birthday, on the intended closing date, the investor first learned of the cousin's inability to convey the farm because the man had breached his promise. The investor considered suing the cousin but realized that she could not compel the cousin to convey the farm because it was still owned by the man.
Six months ago, a man told his cousin that he would give her his farm as a gift on her next birthday. The cousin then entered into a valid written contract to sell the farm to an investor with the closing to take place «one week after [the cousin's] next birthday.»
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Real estate contracts require the seller to convey a marketable title. Marketable title is title free from reasonable doubt as to both matters of the law and fact, and a reasonable purchaser would be willing to accept it readily. The title must be free from any questions that could present an unreasonable risk of litigation ensuing. Defects that may make a title unmarketable include defects in the chain of title itself that indicate the conveyor lacks full interest that he purports to convey, or encumbrances, such as: (i) mortgages; (ii) liens; (iii) easements; (iv) use restrictions; (v) encroachments; or (vi) land-use and zoning violations.
If the contract does not specify otherwise, the title does not have to be marketable until the date of the closing itself. This means the conveyor may sell a property that he does not even own yet, and the purchaser cannot cancel the contract before the closing on this basis.
A «time is of the essence» clause in real estate contracts requires one party to fulfill his or her obligations within a certain time frame. If the party fails to complete the required task on time, it is regarded as a breach of contract. Merely inserting a closing date in a real estate sales contract does not ensure that the date will be «of the essence.» As such, both parties are entitled to a «reasonable» postponement of the closing.
After the closing, the deed typically replaces the real estate contract as the embodiment of the parties' relationship. Under the doctrine of merger, most obligations imposed by the contract of sale are discharged unless they are repeated in the deed. Thus, real estate contracts are only relevant during the gap between its signing, and the delivery of the deed.
Acquiring title by inheriting it, being gifted it, or buying it does not change the type of conveyance or any legal rights the new owner of the title may have.
D is correct. The cousin and the investor had a valid written contract for the sale of the farm. Although the contract listed the closing date as a week following the cousin's next birthday, it did not specify that time was «of the essence,» meaning the cousin and the investor were entitled to a reasonable postponement of the closing. The intended closing date passed, a week later the man died, and the deed was transferred to the cousin within the following week. At that point in time, within two weeks after the proposed closing date, the investor still had a valid claim to enforce the contract because it was a reasonable postponement of the proposed closing date.
A is incorrect. The contract between the cousin and the investor was valid even though at the time it was executed, the cousin was not the legal owner of the farm. The time between executing the land sale contract and the closing date provides the conveyor a window of time in which to ensure title is marketable. In other words, a person can sell an interest in property even if he does not yet own it, as long as he secures marketable title by the closing date. The cousin's sale of the farm to the investor was legally enforceable even though the cousin did not yet have title.
B is incorrect. The manner in which the cousin received title to the farm before the closing date is of no consequence regarding the validity of the contract between the cousin and the investor. The investor has the right to specific performance, regardless of the way the cousin secured valid title.
C is incorrect. This answer reaches the correct answer with the wrong reasoning; it misapplies the merger doctrine. The investor will prevail, but not because the cousin-investor contract merged with the executor's deed to the cousin. Although a land sale contract is typically replaced by the deed under the doctrine of merger, here, the executor's deed to the cousin had no effect on the contract between the cousin and the investor. Nevertheless, the investor has the right to specific performance, as explained above.