CONTENTS 1 Estates in Land (1995 ed)... Don K. Lloyd (2003 supp)... Jeffrey S. Davis 2 Concurrent Estates (1995 ed)... Jean M. DeFond (2003 supp)... John C. Watkinson Abigail A. Klinect 3 Easements (1995 ed & 2003 supp)... Mark A. Manulik (1995 ed)... Gary A. Maguire (2003 supp)... Henry W. Gerock III 4 Covenants, Conditions, and Restrictions (1995 ed & 2003 supp)... Eugene L. Grant 5 Statute of Frauds (1995 ed & 2003 supp)... Alan K. Brickley 6 Conveyances (1995 ed)...donald A. Gallagher, Jr. (2003 supp)... Catherine D. Susman 7 Description of Land (1995 ed & 2003 supp)...thomas R. Page 8 Recording and Priorities (1995 ed & 2003 supp)...c. Cleveland Abbe 9 Marketable Title (1995 ed & 2003 supp)...michael G. Magnus 10 Highway Access (1995 ed)...sandra Campbell (2003 supp)... Linda M. Bolduan Joseph W. West 11 Fixtures (1995 ed)...janet M. Gravdal (2003 supp)... Alexandra E. Sosnkowski 2003 Rev
Contents (continued) Table of Forms Table of Statutes and Rules Table of Cases Subject Index 2003 Rev
9 MICHAEL G. MAGNUS* MARKETABLE TITLE I. ( 9.1) DEFINITION OF TITLE II. III. MARKETABLE TITLE GENERALLY A. ( 9.2) Definition of Marketable Title B. ( 9.3) Form of Title a Vendee Must Accept C. ( 9.4) Title Must Appear of Record D. ( 9.5) Public Records Must Evidence Good Title E. ( 9.6) Judicial Determination of Title HOW THE QUESTION OF MARKETABLE TITLE ARISES A. ( 9.7) As a Matter of Contract 1. ( 9.8) Vendor and Vendee May Contract for Equivalent Standard 2. ( 9.9) Defects in Title MICHAEL G. MAGNUS, B.A., University of California, Irvine (1972); J.D., University of California, Los Angeles (1975); member of the State Bar of California since 1976 and the Oregon State Bar since 1977; partner, Greene & Markley, P.C., Portland. *The author gratefully acknowledges the assistance of Teresa H. Pearson and Tiffancy Lonnevik in preparing this chapter. The case citations in this chapter were checked for overrulings and reversals through the following Shepard s volumes: Oregon Citations...Vol 87,No 8 Federal Citations... Vol 85,No 15 The citations to ORS were checked through 1995. 9-1
IV. 3. ( 9.10) Title Satisfactory to Vendee 4. ( 9.11) Vendee Is Not Obligated to Pay if Title Is Not Marketable B. ( 9.12) Defense to Vendor s Action for Specific Performance C. ( 9.13) Blocking Vendor s Attempt to Declare Forfeiture D. ( 9.14) As Defense to Vendor s Suit for Strict Foreclosure E. ( 9.15) Vendee s Suit for Specific Performance; Abatement of Purchase Price F. ( 9.16) Rescission by Vendee G. ( 9.17) Vendee s Action for Damages H. ( 9.18) Action to Recover Earnest Money I. ( 9.19) Title Insurance Recovery KIND OF TITLE BARGAINED FOR A. ( 9.20) Marketable Title Implied B. ( 9.21) Title Insurance, Abstract of Title, and Their Relationship to Marketable Title V. SCOPE OF DOCTRINE OF MARKETABLE TITLE A. ( 9.22) Generally 1. ( 9.23) Encumbrances 2. ( 9.24) Liens B. ( 9.25) Mortgages and Trust Deeds C. ( 9.26) Leases D. Zoning and Use Restrictions 1. ( 9.27) Public Restrictions 2. ( 9.28) Private Restrictions E. ( 9.29) Taxes, Assessments, and Water Charges F. ( 9.30) Judgment Liens G. ( 9.31) Easements H. ( 9.32) Failure to Probate I. ( 9.33) Title by Adverse Possession J. ( 9.34) Title Defeated by Adverse Possession K. ( 9.35) Liens or Encumbrances that Can Be Discharged or Removed 9-2
L. ( 9.36) Title Derived Through Judicial, Statutory, or Tax Sale M. ( 9.37) Foreclosure of a Land Sale Contract N. ( 9.38) Boundary Line Disputes VI. ( 9.39) FORM OF DEED VII. ( 9.40) WAIVER OF DEFECT IN TITLE VIII. ( 9.41) WAIVER OF REMEDIES IX. ( 9.42) BREACH OF COVENANT TO DELIVER MARKETABLE TITLE I. ( 9.1) DEFINITION OF TITLE In order to understand marketable title, it is important to have an understanding of the term title and what it connotes: The term title has been defined as that which is the foundation of ownership, of either real or personal property, and that which constitutes a just cause of exclusive possession. It has also been defined as ownership, equitable or legal, and title may be of several kinds, among them absolute, conditional, equitable, and legal. Title has also been defined as the evidence of the right which a person has to possession of property, or to the enjoyment thereof, or the means whereby a person s right to property is established. 73 CJS Property 31 (1983). See also United States v. Gossler, 60 F Supp 971, 973 (D Or 1945). Thus, in a sense, marketable title is perfect title, undisturbed by defects. II. MARKETABLE TITLE GENERALLY A. ( 9.2) Definition of Marketable Title Marketable title is title such as a prudent man, well advised as to the facts and their legal bearings, would be willing to accept. The doubts must be such as will affect the market value of the estate. They must not be frivolous and astute niceties. They must be such as would induce prudent men to hesitate in accepting a title affected by them. The doubt must be grave and reasonable. 9-3
9.3 / Marketable Title Security Savings & Trust Co. v. Evans, 144 Or 15, 23, 21 P2d 782 (1933). The question what constitutes marketable title is a question of law for the court. 1 MILTON R. FRIEDMAN, CONTRACTS AND CONVEYANCES OF REAL PROPERTY 4.1, at 351 (5th ed 1991). For example, a significant doubt is the lack of a patent from the United States in the chain of title for a part of the land offered to be conveyed by the seller. McCarty v. Helbling, 73 Or 356, 364, 144 P 499 (1914). A failure to foreclose prior contracts in the chain of title has also been held to create a serious doubt that rendered the vendor s fee simple title unmarketable. Security Sav. & Trust Co. v. Latta, 118 Or 559, 563 564, 247 P 777 (1926). Pending litigation contesting the validity of the vendor s title raises a serious doubt for a reasonable person and renders the vendor s title unmarketable. Wollenberg v. Rose, 45 Or 615, 622, 78 P 751 (1904). In the Wollenberg case, two parties (the Marks) sold the property to Rose, and died soon thereafter. The heirs of the Marks were embroiled in litigation when tender of the deed and abstract was required by the vendee under the contract. Due to the litigation, the title of Herman Marks, an heir and purported owner of the property, was subject to dispute in court. In Cameron v. Benson, 57 Or App 169, 172, 643 P2d 1360 (1982), modified, 295 Or 98 (1983), in which the seller s title was encumbered by judgment liens totalling more than $40,000, the court of appeals stated: A purchaser is not required to accept title which might reasonably be expected to involve litigation. The court also noted that the judgment lien creditors were not parties to the action and the trial court could not pass on the validity of the liens that would bind such creditors: A court cannot create a marketable title by passing upon an objection depending on a disputed question of fact, or a doubtful question of law, in the absence of the party in whom the outstanding right was vested. Cameron v. Benson, supra, 57 Or App at 173 (citing Wollenberg v. Rose, supra, 45 Or at 622). B. ( 9.3) Form of Title a Vendee Must Accept A variety of terms are used to describe marketable title. The courts use interchangeably the words good, merchantable, indubitable, and first class. See 92 CJS Vendor & Purchaser 189 192 (1955). If the seller has agreed to convey good title, then the purchaser should not be compelled to take a defective or encumbered title. Collins v. Delashmutt, 6 Or 51, 53 (1876). However, the court has also noted: 9-4
Marketable Title / 9.5 The purchaser cannot demand a title absolutely free from all suspicion or possible defect, nor that he be guaranteed against any trouble on account of the title. He can simply require title such as a prudent man, well advised as to the facts and their legal bearings, would be willing to accept. The doubts must be such as will affect the market value of the estate. They must not be frivolous and astute niceties. They must be such as would induce prudent men to hesitate in accepting a title affected by them. The doubt must be grave and reasonable. Security Savings & Trust Co. v. Evans, 144 Or 15, 22 23, 21 P2d 782 (1933). The court continued: [A] purchaser does not desire and is not compelled to purchase a lawsuit. Evans, supra, 144 Or at 24. C. ( 9.4) Title Must Appear of Record Marketable title means that the title must appear of record and not rest in parol. Schreiber v. Karpow, 290 Or 817, 823, 626 P2d 891 (1981); Winslow v. Gilstrap, 147 Or 374, 380, 32 P2d 767 (1934) (citing Lockhart v. Ferrey, 59 Or 179, 183, 115 P 431 (1911)). In Oregon, [t]he presumption is that all conveyances are duly recorded, and the fact that the record fails to show a conveyance of real property would give rise to the presumption that no such a conveyance is in existence. Collins v. Delashmutt, 6 Or 51, 54 (1876). Furthermore, [t]he principle is, that an abstract is an epitome of the substance of the record of titles, and a title cannot rest even partly in parol when tendered in performance of a contract calling for a clear title abstract. Wurfel v. Bockler, 106 Or 579, 584, 210 P 213 (1923). D. ( 9.5) Public Records Must Evidence Good Title It is well established in Oregon that all conveyances must be recorded so that the validity of titles may appear from the inspection of the records, and no purchaser can be required to go forward, and complete a purchase when the title of his vendor does not appear from an inspection of the records. Collins v. Delashmutt, 6 Or 51, 53 54 (1876). The public records must clearly show that the title of the seller is valid. If the records do not show this, then the buyer has no obligation to purchase the land. Schreiber v. Karpow, 290 Or 817, 823, 626 P2d 891 (1981) (quoting from Lockhart v. Ferrey, 59 Or 179, 183, 115 P 431 (1911), the following: A marketable title means one appearing to be such by the record of conveyances or other public memorial. It means that the title must appear of record and not rest in parol ); Winslow v. Gilstrap, 147 Or 374, 380, 32 P2d 767 (1934). In Wurfel v. Bockler, 106 Or 579, 210 P 213 (1923), the vendor sued for specific performance and the vendee counterclaimed for 9-5
9.5 / Marketable Title rescission. The contract required the vendor to furnish an abstract showing marketable title, and allowed the vendor a short time period to cure any defects. The vendor obtained a decree to quiet title against all known and unknown liens of the deceased record owner. Then, the vendor obtained deeds from all known heirs and brought the abstract current. Unfortunately, the vendor s title was not good because there was a one-year statutory period for the unknown heirs to intervene in the action, and the one-year period had not elapsed. The court determined that even though the one-year period had not elapsed, the vendor had the right to cure the record title, and that a one-year period was not unreasonable. The court also stated that the suit was premature under the circumstances. In Annand v. Austin, 86 Or 403, 167 P 1017, 168 P 725 (1917), the abstract did not show a clear title as required under the contract. The court held that because a good title was not shown in the abstract, the vendee was entitled to rescission even if further evidence was available to show marketable title. Again, the record as shown by the abstract was all-important. In Jaeger v. Harr, 62 Or 16, 123 P 61, 123 P 901 (1912), the contract called for an abstract of title. The abstract of title did not disclose a defect in the title to the lot, but the vendee claimed that the legal description of the plat in which the lot was located was defective. Because the vendor s title was not brought into question, the vendor could use extrinsic evidence to show that the legal description was not defective. In so holding, the court approved cases that held extrinsic evidence was permitted to verify the abstract. In Lockhart v. Ferrey, supra, the contract required a deed to be delivered on the final installment, along with an abstract of title showing marketable title in the vendors. The vendors purchased the land from a party who had died during the sale. As a result, the vendors obtained a deed from the heirs. When the vendors tendered the abstract to the vendee, however, it showed title to the land in the deceased because the vendors had not recorded their deed. The vendee sued for specific performance and the vendors counterclaimed for rescission. The court held that the defect in title rendered the vendors performance incomplete and deprived them of the remedy of rescission. Consequently, the vendee could reject the tender and obtain a decree of specific performance. The vendor in Security Savings & Trust Co. v. Evans, 144 Or 15, 21 P2d 782 (1933), obtained its title from a woman who, pursuant to a will, had a life estate in the property, with the remainder held by the issue 9-6
Marketable Title / 9.7 of her body. The vendor had obtained deeds from the woman s present issue her sons. Nonetheless, in the future those sons could have children in whom the remainder would then vest. The question was thus whether the vendor s title was marketable. The court noted that the question was difficult to resolve because a court in the future could hold that the issue had either a contingent remainder or an executory devise: Because there were minor children involved, the court could not render a decree. Thus, the title was not marketable and the vendee could not be compelled to purchase the property. A vendor may not sue for strict foreclosure unless the vendor has performed, or is able to perform, the vendor s promises under the contract. In Winslow v. Gilstrap, supra, 147 Or at 379, the vendor sued for strict foreclosure but had been unable to deliver to the vendee, as required by the contract, an abstract showing the vendor s marketable title. Until the abstract and deed were delivered by the vendor, the court found that the vendor was not entitled to a decree of strict foreclosure. E. ( 9.6) Judicial Determination of Title In certain instances, a court may adjudicate a question of law or fact in order to render the vendor s title marketable. 1 MILTON R. FRIEDMAN, CONTRACTS AND CONVEYANCES OF REAL PROPERTY 4.6, at 386 (5th ed 1991). However, if a court cannot be sure that its judgment on the law, the facts, or both will be conclusive, and that another jurisdiction might rule differently, then the title cannot be rendered marketable by a decision of the court. CHAPMAN MAUPIN, MARKETABLE TITLE 283, at 772 773 (3d ed 1921). III. HOW THE QUESTION OF MARKETABLE TITLE ARISES A. ( 9.7) As a Matter of Contract The question of marketable title arises in the context of a contract for the sale of real property. When a vendor agrees to sell land to the vendee, the vendor is in effect agreeing to sell title to the land that is the subject of the contract. Furthermore, an agreement to transfer title by a good and sufficient deed binds the vendor to convey a good title. Standard Stevens-Ness Form No. 671 contains the following provision: The Property is to be conveyed by good and sufficient deed free and clear of all liens.... As the Oregon Supreme Court has noted, It is now a settled principle of law governing all executory contracts for the sale of real 9-7