Once the parties have reached an agreement, they execute a contract for sale and enter into the executory period. This is the period where the parties are most busy, as they perform their obligations under the contract before the closing date (the end of the contractual relationship).

Most states, if not every state, require this contract to satisfy the statute of frauds. That is, the contract must be put in writing and sufficiently describe the essential terms of the agreement (parties, price, intent to sell). This is because the statute of frauds applies to contracts for the sale of land.

Equitable Conversion and Allocation of Risk

When the contract for sale is executed, each party obtains an interest in the property. The seller retains legal title and possession of the property while the buyer has an equitable title. Along with this interest comes with certain rights, which could increase the risk of damages to the other party. Consequently, these risks are usually mitigated in the contract (e.g., provisions limiting the ability to transfer rights during the executory period).

Buyers also have an inherit amount of risk as it is assumed that they take on the risks of any negative consequences that occur during the executory period. However, with the development of insurance, this risk has been minimized. Typically the seller obtains insurance which money is put into a trust. Because the seller is double protected by this point (with the assumption that the risk will be allocated to the buyer plus the purchase of insurance), the insurance money can be used to benefit the buyer if anything were to occur.

However, most of the time, the purchase agreement is most likely going to allocate the risk to the seller.

Estate of Clark

447 N.W.2d 549 (Iowa Ct. App. 1989).

Ms. Clark was afforded a life estate of the home of her mother in her will. However, that was only a present intent, and not actually a life estate. A real life estate occurred the following February. Before the life estate occurred, the home was sold to another family. Clark’s mother died shortly thereafter and Ms. Clark brought this suit, wishing to claim title to the home.

The court denies that there was a life estate created before the sale of the home. Consequently, the buyers had an interest in the home before Ms. Clark did. Because that interest transferred before the life estate was granted, Ms. Clark’s mother’s interest had also transferred. Therefore, Ms. Clark’s mother had not rights to grant a life estate at that time and Ms. Clark has no interest in the property.

Krotz v. Sattler

2004 WL 2297151 (Iowa App.)

Krotz was selling land to Sattler. There were three neighboring parcels up sale. Two of them were sold quickly while the third was not. After execution of the contract and purchase of two of the three parcels, Sattler began working on the land. During this process, he went through the parcel that was not yet purchased. Krotz brought this action for trespass against Sattler. A directed verdict was afforded to Sattler’s benefit.

Sattler had equitable title of the land. This however, did not give him a possessory interest in the land and thus his entry was trespass. Despite his trespass, he is still entitled to a directed verdict because any damage to the land would go against the party with equitable title. Because Sattler had equitable title and damages would have been to his cost, the trespass does not change the outcome (no need to reward the seller twice). Thus, the trial court is affirmed.

Contract Conditions

Warranties and representations are statements about the property, which if false, would give the other party a cause of action.

Covenants are promises that the party will or won’t engage in certain actions about the property.

The contract conditions are the requirements of the party as they go through the executory period (e.g., subject to good title, inspections, financing, etc.).

Louisiana Real Estate Commission v. Butler

899 So. 2d (La. Ct. App. 2005).

The Butler’s (buyers) put down a $12,500 downpayment on a home. They conditioned purchase of the home on whether they were able to get financing in the amount “to be determined” but at an interest rate of 8.5%. Unfortunately, the Butler’s were unable to get financing, requested the return of the downpayment but were denied. This lawsuit followed.

The Butler’s did not condition performance on the price of the property, only on the interest rate. There was no evidence that the Butler’s were unable to get a certain interest rate, only that they were unable to get financing. As such, they were in violation of the contract and the sellers are entitled to retain the downpayment.


The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.