Legal Memorandum: Estoppel of Claim of Breach of Warranty of Title

Issue: In Rhode Island, whether Buyer #2 is estopped from asserting a claim of breach of warranty of title where he had knowledge of Buyer #1’s claim, participated in the litigation to defend against such claim and encouraged a transfer of the property to him before such claim had been finally adjudicated.

An argument that the Seller may use to defend against Buyer #2’s claim of breach of warranty of title is estoppel.  This argument is similar to the waiver argument. However, the Rhode Island Supreme Court has distinguished these two theories providing the Seller with another basis for defense.  In Pacheco v. Nationwide Mut. Ins. Co., 337 A.2d 240, 242 (R.I. 1975), the court defined the act of waiver as a voluntary, intentional relinquishment of a known right resulting from the action or non-action of a party.  Waiver depends on a party’s knowledge, but not necessarily his prejudice.  Waiver involves action of only one party and is based on circumstantial evidence.

In contrast, the defense of estoppel can be asserted to bar a party from raising certain rights or privileges when it would be inequitable to permit their assertion.  Estoppel requires a showing of knowledge and prejudicial reliance by the other party.  Accordingly it involves action by both parties and arises by operation of law.  Id. at 242.  Warranty covenants regarding encumbrances and authority to sell are not broken, if at all, until the time the deed is actually delivered.  Lewicki, 455 A.2d at 310.

In addition, Buyer #2 should be estopped from asserting a breach of warranty claim against Seller due to the fact that Rhode Island courts have held that an executory purchase and sale agreement vests in the grantee equitable title to the land and that a third party who purchases such land with […]