E-Alert Case Updates
Unfulfilled Contract Contingencies Do Not (Always) Prevent Equitable Conversion
Grant v. Kahn
On April 27, 2011, the Maryland Court of Special Appeals issued a decision in Grant v. Kahn, which clarified the role of contract contingencies in cases of equitable conversion. The case began in 2007 when Kareem Grant entered into a residential sales contract with Jeffrey Ganz. After the execution of the contract, but before settlement, Stacy and Steven Kahn filed a Complaint for Confessed Judgment against Ganz, and the Montgomery County Circuit Court entered a Judgment by Confession. Afterward, the Kahns filed a Request for Writ of Execution by Levy on the property; and Grant, in turn, moved that the property be released from levy. The Circuit Court denied Grantís Motion, but the Court of Special Appeals reversed the Circuit Courtís decision.
Grant argued that when he and Ganz entered into the sales contract, equitable conversion occurred and equitable title to the property was transferred to Grant. Therefore, he concluded, Ganz only held bare legal title, so no judgment could attach to the property. In turn, the Kahns argued that because there was an unsatisfied financing contingency in the sales contract and because equitable conversion can only occur when the seller would be subject to a decree for specific performance, Ganz still held full equitable title until settlement.
Thus, the central issue in the case was whether the financing contingency in the residential sales contract would have prevented specific performance, and hence, prevented equitable conversion. Pursuant to the contract, the sale of the property was contingent upon Grant receiving financing. After Grant received financing, he was to notify Ganz by delivering a specific form. If 45 days from the date of ratification passed, and Ganz had not received that form, Ganz had the option to require Grant to produce the form within three (3) days. If Ganz did not exercise that option, then the contract would continue to be in effect.
The Court of Special Appeals held that within the first 45 days, the financing contingency benefited only Grant because it allowed him to terminate the contract if he could not secure the necessary financing. Because it benefited only Grant, he was able to waive the contingency, so at that time the contract was specifically enforceable by Grant. After the 45 days passed, and Grant did not deliver the form to Ganz, Ganz did not exercise his option to demand notification. Instead, Grant and Ganz settled on the property. At the time of settlement, Ganz had no option under the contract not to convey the property to Grant. Therefore, at that time, Grant could still have obtained specific performance of the contract. The Court of Special Appeals held that the financing contingency was a condition subsequent, and because neither party took advantage of the condition, the financing contingency did not prevent equitable conversion. One week before settlement, when the Kahns obtained the judgment against Ganz, equitable title was held by Grant, and the judgment could not attach as a lien on the property.
Most significantly, the Court of Special Appeals made clear that there is no rule that the existence of any contingency in a contract prevents equitable conversion, though in Chambers v. Cardinal, 177 Md. App. 418 (2007), the Court had hinted at such a rule in dicta. Additionally, the Court held that the interests of public policy sided with Grant. Otherwise, buyers would face significant risks in purchasing homes from sellers with poor credit histories.
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