Mutual mistake of fact thwarts property sale

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Where both parties to a real estate sales contract mistakenly believed defendant seller had exclusive title to property that plaintiff purchaser contracted to buy, plaintiff has no claim for specific performance, breach of contract or a quiet title/partition action.

Defendants’ position

“Defendants argue that … both Britt Homes and Max Sloop believed Max had exclusive title to the Properties. … The title search conducted by Beach Title … revealed that Max did not in fact have full title. …

“Instead, Defendants assert that upon Max and Jeannie Sloop’s divorce, their tenancy by the entirety was extinguished, leaving Max and Jeannie as tenants in common with each owning a 50 percent interest in the Properties. …

“Then, according to Defendants, upon Jeannie’s death in 2018, her 50 percent interest passed to her son, Jacob Sloop, as her heir. …

“Defendants argue that the requirement in the [divorce] Stipulation for Max to refinance the Properties in his name and transfer sole ownership to him by deed were conditions precedent to him receiving full title. … Therefore, Defendants contend that it was impossible for Max to transfer full title to Britt Homes. …

“Finally, Defendants argue that any cause of action of Britt Homes against Jacob is invalid because Jacob is not a party to the Contracts.”

Britt Homes’ Response

“Britt Homes argues that Max Sloop had a contractual obligation to convey ‘free, clear, and unencumbered’ title to the Properties on the contractual closing date. … It contends that Max had a duty to cure any title defects associated with the Properties prior to closing. …

“Britt Homes claims that in order to convey good title, Max only needed to procure Jacob’s signature on associated deeds prior to the contractual closing date[.] …

“Further, Britt Homes argues that Max knew at the time of contracting that Jeannie Sloop had never transferred her interest to him and that Jacob Sloop was her only heir. … Therefore, Britt Homes contends that there was no mutual mistake of fact between the parties. …

“It also argues that the Stipulation created ‘a present right vested in [Max] to receive title to the Properties.’ … Therefore, Britt Homes claims that Max was entitled to enforce the Contracts against Jacob Sloop at the time of closing by either voluntary signature or action to quiet title.”

Specific performance unavailable

“Britt Homes seeks specific performance of the Contracts despite the fact that Max does not have full title to the Properties. Because there was a mutual mistake of fact underlying the Contracts, the Court holds that specific performance is unavailable.

Although Britt Homes suggested at the Hearing that Max knew that he did not have full title to the Properties at the time of contracting, there are no related allegations in the Complaint.

“In fact, Britt Homes asserts in the Complaint that it was the title search conducted by Beach Title – after execution of the Contracts – that revealed that Max did not in fact have full title to the Properties.

“Further, Britt Homes’ reference in the Complaint to an alleged plan between Max and Jacob ‘with the purpose of hindering and frustrating Britt Homes’ is clearly implied to have occurred after execution of the Contracts.

“Therefore, the Court finds that there was a mutual mistake of fact, i.e., a belief that Max had full title to the Properties, and that there are no allegations of fraud at the time of contracting. …

“[T]he Court finds that specific performance similarly is unavailable because Jacob – who owns a 50 percent interest in the Properties – is not a party to the Contracts. …

“Because Max and Jeannie held the Properties as tenants by the entirety until their divorce, and Jeannie’s half-interest was never transferred by deed as anticipated by the Stipulation, Jeannie’s interest converted from tenants by the entirety to tenants in common upon her divorce from Max and then passed to Jacob upon her death.”

No quiet title

“Britt Homes asks the Court to view Jacob’s legal interest in the Properties as a cloud on title and compel Jacob to convey to Max his interest in the Properties so that Max will have full title. Alternatively, Britt Homes seeks a declaration that Max already has equitable full title as a result of the Stipulation. The Court declines to do either. …

“It is undisputed that Max does not have full title to the Properties. Although the Stipulation clearly anticipated that he would eventually own the Properties as his ‘sole and separate properties,’ actual ownership was subject to certain conditions.

“Specifically, Max was required to refinance the Properties solely in his name, prepare deeds of transfer, and ensure that Jeannie signed the deeds to remove her name. Further, Britt Homes alleges that the Properties are still encumbered by an original first deed of trust securing financing to both Max and Jeannie. …

“The Court holds that Max’s right to Jeannie’s interest in the Properties did not transfer upon execution of the Stipulation, as Britt Homes argues. … The Court finds that although the Stipulation granted Max the opportunity to acquire full title after certain conditions were satisfied, a recorded conveyance was necessary for Max to actually gain full legal title. …

“[T]here is no allegation that the required conveyance – from Jeannie to Max – was ever made or recorded. Moreover, Britt Homes has not alleged that all required conditions were fulfilled in order to transfer title to the Properties from Jeannie to Max. …

“[T]he specific language in the Complaint does not properly allege a quiet title action or a partition suit. Jacob’s interest in the Properties is not a cloud on title, as Britt Homes argues, but rather is a legitimate legal interest. Brit Homes also has not alleged that it has superior title to the Properties over Jacob.”

No breach of contract

“Britt Homes alleges a breach of contract action, in which it seeks damages that allegedly stem from Max’s breach of the Contracts. …

“The mutual mistake of fact shared by Britt Homes and Max regarding the status of Max’s title at the time the Contracts were executed precluded the parties from entering fully enforceable purchase contracts.”

Sloop’s demurrer is sustained. Because Jacob Sloop is not a proper party to this suit, he his dismissed from this action.

Joshua Britt Homes LLC v. Sloop Jr., et al., Record No. CL-22-2504, Aug. 3, 2022, Circuit Court of the City of Norfolk (Lannetti). Ronald D. Slaven Jr., Erin C. McDaniel for the parties. VLW 022-8-051, 11 pp.