Daily Development for
Tuesday, October 21, 1997
by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
VENDOR/PURCHASER; TITLE COVENANTS: Once a deed to property is delivered and a sale is complete, the only relevant covenants are those contained in the deed itself. Since the traditional deed covenants do not guarantee that there will be no potential challenge to title - only that title actually will prove valid - any covenants of marketability in the contract are of no avail.
James v. McCombs, 936 P.2d 520 (Alaska 1997).
McCombs acquired land from an agency of the State of Alaska. At the time, a court decision had placed some question upon the validity of the state agency in question to transfer this land. McCombs later sold the land to James via a warranty deed and accepted a promissory note and deed of trust in payment of the purchase price. James failed in his obligations to McCombs and sought to deny his liability under the promissory note to McCombs by claiming breach of the warranty in the warranty deed, The lower Court granted summary judgment in favor of McCombs on both James's claim and McCombs's counterclaim, and James appealed.
The Alaska Supreme Court affirmed, first noting that it was unclear which warranty James Claimed was breached by McCombs. It refused to hold that the earlier court decision in fact clouded the title to the land. Even if it did, however, and even therefore James could have refused to close due to McCombs' failure to deliver marketable title, James had no claim based upon marketability following closing. Because the sale had been completed and the deed delivered to James, the only relevant covenants were those contained in the deed itself. Further, because title must actually be defective before the grantor can be held liable for breach of a covenant to convey marketable title, James's allegations that McCombs had conveyed the land to him subject to a "cloud on the title" were insufficient to establish a breach by McCombs.
Comment: The seller may breach the "present" covenants if indeed there is a valid competing legal encumbrance or claim of title on the property, even if the holder of the encumbrance has taken no action to enforce it. The seller breaches the "future" covenants only if the owner of the competing encumbrance or claim of title has asserted it successfully. But, as the court points out, both situations are different from the "marketability" test. Property is "unmarketable" when a reasonable person would not take the risk of a lawsuit represented by the outstanding claims in third parties.
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