ESSAY EXAM QUESTIONS AND ANSWERS

ANSWER TO QUESTION 3

(1) Dale v. Art (quiet title action):  In an action by Dale (“D”) to quiet title to Greenacre (“G/A”) against Art (“A”), A can be expected to contend that Bob (“B”) could not have conveyed G/A to D because no conveyance of G/A was made to B; and thus B had nothing to transfer to D. A transfer of land does not occur until there is delivery (completion of a valid deed by the grantor, with the intention that it be immediately operative) and acceptance of the deed by the grantee. Where an escrow has been established, there is usually a presumption that the grantor intended that the deed not be immediately operative until the conditions of the escrow are satisfied. Since the condition precedent to the deed being operative (the payment of $5,000 by B) never occurred, B never acquired title to G/A to transfer to D.

D, however, could contend that A should be equitably estopped from denying that the transfer to D was invalid. Some states have adopted the rule that where a grantee wrongfully acquires a deed from an escrow holder chosen by the grantor and then conveys the land to a bona fide purchaser (“BFP”), the grantor is estopped from denying the validity of the transfer against the latter. Assuming D parted with present consideration to acquire G/A (the facts are silent on this point), D would seem to be a BFP (since the land was vacant, a visit to G/A would not have put D upon inquiry notice of A’s ownership interest). Also, since A had given B a warranty deed (as opposed to a quitclaim deed), D would have no reason to investigate B’s title beyond a search of the grantor-grantee index.

Assuming D were a BFP, D would additionally contend that there is a maxim in the law that where one of two innocent parties must suffer, the loss should fall upon the more blameworthy person; and that such person is A since (1) A chose Carl, who incorrectly parted with possession of the deed, and (2) by giving Carl a “clean” deed (one with no conditions upon the face of it), A should have realized that it would be possible for B, if he ever obtained the deed from Carl, to “sell” G/A. While A might contend in rebuttal that escrows are a common device for transferring ownership of land and that Carl, as a real estate broker, should have been well aware of the potential for harm if the deed left his possession, D should prevail in his quiet title action against A (even though no actual conveyance took place).

(2a.) Art v. Carl (“C”):  A would probably sue C for breach of contract and negligence. With respect to the former, C could contend that he has no liability because (1) no contract ever arose between him and A, since C (apparently) received no consideration, and (2) in any event, the Statute of Frauds (which pertains to the sale of land) was never satisfied, since C never signed the statement prepared by A. However, it would probably be implied into the A-C arrangement that the latter would receive a reasonable compensation for this efforts on behalf of A and B. Additionally, equitable estoppel could probably be successfully asserted to overcome these contentions, since A detrimentally relied upon C to act as escrow agent.

While C might next assert that A’s damages are limited to $5,000 (the amount he would have received if the escrow had closed), rather than the enhanced value of the land, A should be able to successfully argue in rebuttal that since the conditions for the close of the escrow were never satisfied, he would have been able to recover the deed back. Therefore, he should be able to recover the present fair market value of G/A from C.

A would also contend that C, by agreeing to act as escrow agent, assumed a duty to A that he would not leave A in a worsened position; and so when C did, he became liable to A in negligence. While C might contend that he could only foresee damages of $5,000, A could probably successfully argue in rebuttal that C should have foreseen that (1) misdelivery of the deed could result in greater damages to A since A would have obtained the deed back at the conclusion of the escrow period, and (2) G/A might appreciate in value. Thus A’s damages would again be the reasonable value of G/A.

(2b.) D v. C:  If D paid consideration for the deed received from B and lost his quiet title action against A, he would probably sue C in negligence for permitting B to obtain control of A’s deed; and thereby defraud D of whatever consideration he paid to B. While C might argue that he had no duty to D (who did not rely upon C) and that B’s fraudulent actions were the actual cause of D’s loss, D should be able to recover from C the consideration which was given to B (C should have reasonably foreseen that B might misuse A’s deed, especially since it was absolute on its face).