Staley v. Stephens
76 Ind. Dec. 194, 1980 Ind. App. LEXIS 1462, 404 N.E.2d 633 (1980)
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Rule of Law:
A property title is not marketable if it contains a defect, even if minor, that exposes the buyer to a reasonable probability of litigation. The risk of litigation itself, regardless of the potential outcome, constitutes a cloud on the title sufficient to render it unmarketable.
Facts:
- Paul L. and Carolyn A. Stephens (Buyers) entered into a contract to purchase a home from Paul R. and Suzanne B. Staley (Sellers).
- The purchase agreement required the Sellers to provide an abstract of title disclosing marketable title to the property.
- The property was subject to restrictive covenants requiring an 8.5-foot sideline setback, and the covenants gave any lot owner the right to sue to enforce them.
- A survey of the property revealed that a portion of the house was only 8.4 feet from the side lot line, violating the setback requirement.
- Upon discovering the violation, the Buyers requested that the Sellers obtain waivers from the other landowners in the subdivision.
- The Sellers refused to obtain the requested waivers.
- Consequently, the Buyers determined the title was not marketable and refused to complete the purchase.
Procedural Posture:
- Paul R. and Suzanne B. Staley (Sellers) filed a complaint against Paul L. and Carolyn A. Stephens (Buyers) in an Indiana trial court for refusing to complete a property purchase.
- The Buyers filed a counterclaim against the Sellers for damages resulting from the failure to tender marketable title.
- At the close of the Sellers' evidence at trial, the Buyers moved for a judgment on the evidence.
- The trial court granted the Buyers' motion, ruling in their favor on the Sellers' complaint.
- The trial court also ruled against the Buyers on their counterclaim before they had an opportunity to present evidence on it.
- The case was then appealed to the Court of Appeals of Indiana for review of the trial court's judgments.
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Issue:
Does a minor violation of a sideline setback restrictive covenant, which contractually allows other landowners to initiate litigation, render a property's title unmarketable as a matter of law?
Opinions:
Majority - Robertson, Presiding Judge
Yes. A minor violation of a sideline setback restrictive covenant that exposes the buyer to a risk of litigation renders the title unmarketable as a matter of law. A marketable title must be free from reasonable doubt and cannot expose the party who holds it to the hazards of litigation. The court determined that even a small encroachment is a 'cloud on the title' when restrictive covenants expressly grant other landowners the right to sue for enforcement or damages. Although a potential damage award might be nominal, the buyer would still incur the costs of defending the litigation. Therefore, a buyer who bargains for marketable title cannot be compelled to accept a property with an admitted defect that carries a risk of a lawsuit.
Analysis:
This decision reinforces the traditional, buyer-protective standard of marketable title, emphasizing that the mere risk of litigation is sufficient to render a title unmarketable. The court clarifies that the size of the defect is less important than the legal exposure it creates. This precedent places a clear burden on sellers to cure title defects, such as by obtaining waivers for known violations, before they can compel a buyer's performance. The ruling affirms that a buyer is purchasing real estate, not the potential for a lawsuit, and will likely be cited in cases involving zoning violations or breaches of restrictive covenants.
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