Facts
- James Stewart Romig (Seller) entered an agreement of sale (Jan. 7, 1976) to sell Denis and Lynette de Vallance and Video Network Productions, Inc. (Buyers) Dwelling No. 3 in the Leahi Estates Horizontal Property Regime, including furniture, fixtures, and appliances, for $130,000.
- The price was payable by (1) $945.08 per month starting Feb. 7, 1976, with interest at 9.75% per annum on the $110,000 balance; (2) a $20,000 payment plus 9% interest due Apr. 1, 1977; and (3) the remaining balance due in full on Jan. 7, 1981.
- Buyers took possession immediately, but Seller would convey title only after full payment; the agreement required Seller to deliver clear title at that time.
- After taking possession, Buyers complained of construction and appliance deficiencies and, through counsel, stated they intended to withhold payments after March 1976 until the deficiencies were corrected.
- Seller denied any duty to perform “restorative work,” but offered to pass along existing appliance warranties and assign any rights against the contractor to Buyers.
- Buyers later learned the house was partially built outside the boundaries of the lot being sold and encroached on an adjacent lot; Buyers advised Seller that the condition would have to be corrected to permit transfer of good title.
- The agreement required a survey at Seller’s expense, and Buyers asserted the survey had not been completed despite requests.
- Seller claimed Buyers were in default for failure to pay monthly installments and for missing the $20,000 payment due Apr. 1, 1977, and sued for cancellation of the agreement and forfeiture/retention of amounts already paid.
- Buyers relied on the encroachment and requested information and assurance that Seller could cure the property-line problem and ultimately convey clear title; Seller argued, among other things, that a Buyers’ waiver of “all claims for property damage and construction faults on the dwelling” barred Buyers’ defenses or claims.
- The circuit court granted summary judgment for Seller, canceling the agreement and allowing Seller to retain payments; Buyers appealed.
Issues
- Whether Buyers’ written waiver of “all claims for property damage and construction faults on the dwelling” also waived claims or defenses arising from the dwelling’s partial construction on the wrong lot (an encroachment/title problem).
- Whether, under an agreement of sale of an interest in land, a buyer may (by analogy to U.C.C. § 2-609) demand in writing adequate assurance of the seller’s due performance upon reasonable grounds for insecurity, and may reasonably suspend payment until receiving such assurance.
- Whether summary judgment canceling the agreement and imposing forfeiture was proper where the encroachment and the demand for assurance raised fact questions affecting default and remedy.
Decision
- The Intermediate Court of Appeals held the waiver of “property damage and construction faults” did not waive rights arising from the dwelling’s being partially constructed on the wrong lot.
- The court recognized an adequate-assurance doctrine for agreements of sale of land, drawing by analogy from U.C.C. § 2-609: when reasonable grounds for insecurity arise about the seller’s performance, the buyer may demand written adequate assurance and may reasonably suspend further performance until assurance is received.
- The court concluded the encroachment and survey-related circumstances could supply reasonable grounds for insecurity about Seller’s ability to deliver clear title when due.
- Because the parties’ communications, the reasonableness of Buyers’ suspension of payments, and the status and cure of the encroachment presented fact-dependent questions, the case could not be fully resolved on summary judgment.
- Disposition: affirmed in part, reversed in part, and remanded for further proceedings.
Legal Principles
- A waiver of claims for “property damage and construction faults” concerns physical-condition complaints and does not, without more, waive claims tied to a title/parcel problem such as a structure being partly on the wrong lot.
- Although U.C.C. Article 2 governs goods, its adequate-assurance concept may be used by analogy in some land-sale disputes, with necessary tailoring to real-property obligations.
- Under an agreement of sale of an interest in land, when reasonable grounds for insecurity arise regarding the seller’s performance, the buyer may demand adequate assurance of due performance in writing and may reasonably suspend unperformed obligations (including payments) until assurance is received.
- An encroachment affecting the property being conveyed, and related failures to complete a required survey, can create reasonable insecurity about the seller’s ability to provide clear title at the time conveyance is due.
- Cancellation and forfeiture are severe remedies; where defenses based on adequate assurance and title-related performance turn on disputed facts, summary judgment is generally improper.
Conclusion
Romig v. De Vallance held that Buyers’ waiver of construction-fault claims did not reach an encroachment/title defect and that, in a land installment sale, a buyer who has reasonable grounds to doubt the seller’s ability to deliver clear title may demand written adequate assurance and reasonably suspend payments pending assurance; because those matters required factual determinations, the appellate court reversed the summary judgment forfeiture in part and remanded.