Case of the Day – Wednesday, September 1, 2021

REALITY BITES

Sometimes, reality bites. Not just the movie, but real life. Ask Andrew Cuomo. Or Harvey Weinstein. Or Paul Manafort and Michael Cohen. Or even Mike Richards. It especially bites when the very steps a prudent man takes to protect himself become the evidence on which a court relies to put him in the jeopardy he sought to avoid.

So it was with Mr. Jackson (who, we hasten to add, had no past anything like Messrs. Cuomo, Weinstein, Manafort, Cohen and Richards are alleged to have). Instead, Mr. J simply sold some land by land installment contract (also known as contract for deed or installment sale agreement) to Mr. Smith. Pay attention, because land contracts have become much more popular in the last decade. A land installment contract lets a property owner safely sell land with seller financing. The buyer puts down a small (sometimes no) down payment, with an agreement to make monthly payments for a period of time until the purchase price has been paid. At that time, the seller (sometimes called the “vendor”) transfers the land to the buyer (called the “vendee”).

Once in a blue moon (we just had one), a land installment contract is necessary for the completion of a real estate deal between two parties of equal bargaining power and sophistication. We recall handling one like that once in our legal career. But only once. Land installment contracts are almost always not very good deals – not just because the terms are oppressive or one-sided (although they often are) – but because the contracts represent transactions that are only financing of last resort. The vendees are often scarcely able to handle the payments, let alone able to manage the rigors of home ownership. In our experience, many if not most land installment contracts fail, resulting in evictions or foreclosure (depending on the state laws).

Perhaps because of the likelihood that the property will fall into disrepair or the vendee will default, many vendors want land contract documents that provide them with as much control over their properties as possible. This is understandable. What is less understandable is that sometimes, the more control a vendor reserves to himself or herself, the less safe he or she becomes.

In today’s case, the vendor understandably required the vendee to buy insurance on the place that named the vendor as a named insured. That made sense. After all, the vendee only had paid about 17% of the purchase price, meaning he didn’t have a very big stake in the place. But the vendor wanted to be sure the vendee did what he was supposed to, so the vendor drove by the place on a nearly daily basis, and he bought insurance for the place himself. The vendee reimbursed him, but the arrangement was at odds with what the contract required. Partly because the vendee knew how closely the vendor was watching the place, he checked with the vendor about alterations and modifications before he undertook them.

When a 10-year old boy riding a bike was struck and killed, the boy’s mother blamed obstruction in sight lines caused by untrimmed trees on the property. After a suitable period of mourning, she sued. She went after not only vendee Smith but after Mr. Jackson, too. He was the guy who really controlled the property, she claimed. The trial court disagreed and dismissed Jackson from the suit.

The Court of Appeals reversed. The facts that the vendee had paid so little and Mr. Jackson had cared so much about the condition of the property — and especially because he had gotten his own insurance even though the agreement dictated that Smith would do so — suggested to the Court that there was a real question of fact as to whether Mr. Jackson had control of the premises. He just might be to blame, the Court suggested, for the tree that had never been trimmed and which had allegedly obscured the young boy’s view of oncoming traffic. The Court returned the case to the trial court for a jury’s consideration.

Poor Mr. Jackson. Normally, vendors aren’t liable for the conditions of premises they have conveyed pursuant to land installment contracts. But vendors want the best of both worlds, to have control over their property until they’re paid, while not being liable for anything that goes wrong. Mr. Jackson was like that. He probably thought he was being very prudent in approving changes, in making sure insurance was in place, and in driving by like a stalker in Hollywood Hills. Instead, his caution only made the Court suspect that he had retained a lot more control than the typical vendor.

There’s a lesson here. If you sell pursuant to land contract, get a good lawyer to write as strong a contract as is prudent. Then, enforce the contract. Stick to the deal. If you want to deviate from its terms, sign a written amendment. Don’t start “rewriting” the deal by your conduct.

Scheible v. Jackson, 881 N.E.2d 1052 (Ct.App. Ind. 2008). Jackson sold a parcel to Smith under a land installment contract. Smith lived on the premises. In early 2005, Jackson received a certified notice from the City of Columbus about saplings growing on the property that had to be removed. Jackson gave the notice to Smith, who took care of the problem.

However, a mature tree on the property hung over the sidewalk, the tree lawn and a part of 7th Street’s westbound lane. Branches of the tree drooped quite low, touching or almost touching the grass. One summer day, Mrs. Scheible’s ten-year-old son, Travis, was riding his bicycle on the sidewalk along the north side of 7th Street. Just west of the tree, Travis started to cross the street. The leaves and branches of the tree obstructed his view. A motorist struck Travis’ bicycle, killing the boy.

Travis’ mother sued Jackson and Smith. She alleged Jackson and Smith both exercised control of the property and that they owed a duty to the traveling public to maintain the property in a reasonably safe condition. Jackson moved for summary judgment, arguing that he owed no duty of care to Travis. The trial court agreed. Mrs. Scheible appealed.

Held: The Court reversed. Noting that young Travis was not on the property when he was struck, the Court conceded that as an initial matter, it appeared that a vendor is not liable for physical harm caused to others outside of the land by a natural condition of the land. However, the law was clear that a possessor of land in an urban area is subject to liability to persons using a public highway for physical harm resulting from his failure to exercise reasonable care to prevent an unreasonable risk of harm arising from the condition of trees on the land near the highway.

The Court focused much more on control that it did on mere possession. The evidence — taken in a light most favoring Mrs. Scheible (which it must be when summary judgment is being considered) suggested that Jackson retained substantial control. Smith, who lived on the land and was buying it under land contract, had paid only a small portion — about 17% — of the total price. He testified he consulted with Jackson on major alterations, and discussed removal of the tree that allegedly obstructed Travis’ view before the tree was cut down, after the accident. The Court said it wasn’t clear whether Smith just advised Jackson or actually had to obtain his approval for alterations. To be sure, Jackson maintained a substantial interest in the property as well as a financial stake: he testified he drove by the property often.

The Court held that where a person retains control of property, regardless of the contents of the land installment contract, liability may still attach. The Court said that “[o]ne who assumes the control and management of property cannot escape liability for injuries by showing a want of title in himself.” The fact of a land-sale contract, the Court said, is not itself dispositive as to the vendor’s non-liability.

What’s more, the fact that Jackson and Smith deviated from the precise terms of the contract bothered the Court. The contract terms provided Smith would carry insurance on the property, with the Jacksons and Smith being named as insureds. However, Jackson kept his existing insurance policies on the property in place. He paid the premiums and Smith reimbursed him. The Court held that this meant that Jackson’s use of the property was insured, but Smith — the person Jackson asserted to have been the only one with control of the property — had no coverage at all. The Court found it ironic that Jackson sought to avoid responsibility for the condition of the property, yet maintained two insurance policies on which he was the sole insured. Along with other elements of the case, the Court held, Jackson’s insuring himself to the exclusion of his vendee, Smith, supported the reasonable inference that Jackson controlled the property.

Summary judgment was reversed and the case was sent to trial.

– Tom Root