31. Is the buyer correct?

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 is a variety of defects that may make a title unmarketable. Defects in the chain of title refer to any defect that indicates the vendor does not have the full interest which he purports to convey. Encumbrances, such as: (i) mortgages; (ii) liens; (iii) easements; (iv) use restrictions; (v) encroachments; or (vi) land-use and zoning violations can also make a title unmarketable.

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 the delivery of the deed.

C is correct. Marketable title is title reasonably free from doubt, which generally means unencumbered fee simple with good record title. An easement may render a title unmarketable, especially with the type that would benefit a neighbor rather than the property owner. Here, the right-of-way easement would render the title unmarketable. Although the quitclaim deed only gives title to what the owner actually owns, the owner's promise to deliver marketable title means the buyer can refuse to close because this property does not have a marketable title.

A is incorrect. The right-of-way easement would render the title unmarketable.

B is incorrect. Quitclaim deeds still require an implied covenant to provide marketable title, unless it is waived in the contract. Quitclaim deeds do not negate the implied covenant to provide marketable title. EVERY land sale contract has an implied covenant of marketable title. Further, the seller specifically promised to deliver a «marketable» title to the buyer. Although the quitclaim deed only gives title to what the owner actually owns, the owner's promise to deliver marketable title means the buyer can refuse to close.

D is incorrect. A seller has the right to satisfy a mortgage at the closing with proceeds of the sale. If the purchase price is sufficient, the closing results in a marketable title. Although the title is unmarketable, it is because of the right-of-way easement. The proceeds of the sale would satisfy the mortgage.