17. Is the church likely to prevail?

Real estate contracts require the seller to convey a marketable (also known as merchantable) title. If the contract is silent on the issue of what kind of title that is to be conveyed, the obligation to convey a marketable title will be implied in the contract. Marketable title is free from reasonable doubt as to both matters of the law and fact, and a reasonable purchaser would be willing to accept it readily.

Parties can contract for something less than «marketable title.» Quitclaim deeds transfer whatever title the grantor has to the grantee, even if that title is unmarketable. However, unless the parties specifically contract for this kind of conveyance, there will be an obligation to convey marketable title. There are a large number of different defects that may make a title unmarketable. Defects in the chain of title refers to any defect that indicates the vendor does not have the full interest which he purports to convey. Encumbrances can also make a title unmarketable, such as: (i) mortgages; (ii) liens; (iii) easements; (iv) use restrictions; (v) encroachments; or (vi) land-use and zoning violations.

After the closing, the deed typically replaces the real estate contract as the embodiment of the parties' relationship. Under the doctrine of merger, most obligations imposed by the contract of sale are discharged unless they are repeated in the deed. For example, if a purchaser contracted for merchantable title but accepts a quitclaim deed, the purchaser would not be able to sue on the contractual provisions if the title turns out to be defective. The purchaser in this scenario would be limited to the provisions on the deed. Thus, real estate contracts are only relevant during the gap between its signing and delivery of the deed.

A is correct. A fee simple determinable is an estate that will end automatically when the stated event or condition occurs. The interest will revert to the grantor or the heirs of the grantor. Normally, a possibility of reverter follows a fee simple determinable.

The warranty deed conveyed a fee simple determinable title to the church, and the grantor retained the future interest, which is the possibility of reverter. The future interest becomes possessory immediately upon the occurrence of the limitation. A title is unmarketable when a reasonable person would not purchase it. The buyer plans to use the land as a site for business purposes, which would cause the limitation to occur and the title to be forfeited automatically to the grantor.

B is incorrect. This answer correctly states that the church is unlikely to prevail, but it misstates the legal basis for the conclusion. The quoted provision creates a fee simple determinable title in the church. If the stated limitation occurs, the fee simple estate terminates automatically and title is forfeited to the holder of the future interest (in this case, the grantor). A restrictive covenant involves a promise regarding the use of the land and is not the title itself. Because the title here will be forfeited to the grantor if the land is not used for church purposes, no reasonable third party is likely to buy the land, and the church's title is not marketable.

C is incorrect. When and if the limitation occurs, the interest of the present interest holder is automatically terminated and title goes to the grantor as the holder of the future interest. While it is true that the church may use the sale proceeds as it desires, it is unlikely to find a buyer because any change in the use of the land would cause the title to be forfeited automatically to the grantor. Accordingly, the church's title is not marketable.

D is incorrect. The grantor conveyed a title, which was a fee simple determinable, to the church and retained the possibility of reverter in fee simple. The grantor did not breach any title warranty. If the property is not used for church purposes, the property automatically is forfeited to the holder of the future interest, who is the grantor. Accordingly, the church's title is not marketable.