This 2017 Case Involves a Title Which is Found to be Not Merchantable. Notaries who do Real Estate Will Find This Interesting and Instructive.
LATTER AND BLUM, INC. versus SCURLOCK
Facts: Dr. Ditta, seller, and Mr. Scurlock, buyer, entered into an agreement to buy or sell. It was an all cash sale and in exchange for the purchase price, Dr. Ditta was obligated to deliver a merchantable title at the closing. There was an issue with a fence encroachment onto adjoining properties. Mr. Scurlock's attorney asked to postpone the closing date by 30 days so the parties could fix the title issue.
In order to fix the fence encroachment issues, Dr. Ditta executed boundary agreements with the owners of each of the three adjoining properties, which all agreed that the boundary lines were reflected by the existing fence surrounding the property. These agreements were later recorded in the Orleans Parish conveyance records. Mr. Scurlock was going through a divorce and emailed his attorney and Dr. Ditta that he would not be going to the closing. Mr. Scurlock did not go to the closing, but his attorney claimed it was because the title was still unmerchantable.
Scurlock made a second, lower, offer on the property which was denied and Dr. Ditta later sold the property to a third party. Both Dr. Ditta and Mr. Scurlock requested that Latter & Blume release the deposit Mr. Scurlock put down on the. Latter & Blume refused to release the deposit and sued Mr. Scurlock for the amount in commission they could have recovered if the sale went through, and Dr. Ditta sued Mr. Scurlock for damages because he breached the purchase agreement.
The trial court ruled in favor of Mr. Scurlock stating that he had established the title was not merchantable on the closing date and he was therefore not required to buy the property and is entitled to his deposit back. The trial court also decided that Mr. Scurlock's email did not anticipatorily breach the purchase agreement.
Result: Affirmed by the Court of Appeal.
Rationale: The court addressed two main issues: anticipatory breach of contract and merchantability of title.
First, the doctrine of anticipatory breach of contract "'applies when an obligor announces he will not perform an obligation which is due sometime in the future.'" Fertel v.Brooks. Under those circumstances, "[t]he obligee need not wait until the obligor fails to perform for the contract to be considered in breach." The jurisprudence, however, also has recognized the principle of retraction of an anticipatory breach (repudiation) of contract. Dr. Ditta argued that Mr. Scurlock's email established an anticipatory breach. However, in Mr. Scurlock's email he did not refuse to execute the act of sale and his performance was not due to Dr. Ditta until she provided merchantable title.
The court notes that neither party relied on the email and both acted like the sale would go through after it was sent. The court held that there was no anticipatory breach in this situation.
The second issue was whether the title was merchantable. Property has a merchantable title when it can be readily sold or mortgaged in the ordinary course of business by reasonable persons familiar with the facts and questions involved. '[O]ne should not be made to accept a title tendered as good, valid and binding unless it is entirely legal from every point of view. The promisee in a contract to sell is not called upon to accept a title which may reasonably suggest litigation. And while the amount may be small, it cannot be said that because of this fact the danger of litigation is not serious. The party who seeks to demonstrate that a title is unmerchantable has the burden of proof at trial. Courts have held that "where one seeks to demonstrate that a title is unmerchantable as suggestive of litigation, he bears the burden of proof, as in any other usual litigation." In the present case Mr. Scurlock had the burden of proof, and he met that burden.
The property was not merchantable due to the fence encroachments. There were other creditors and mortgage companies that held mortgages on the adjacent properties who were not privy to any boundary agreement. There was also an unsettled lawsuit and a problem with the neighboring condominium signing the boundary agreement and the validity of the agreement. The court found that because of these three factors, the fence encroachments were considered to be suggestive of litigation.
Dr. Ditta and Latter and Blum, Inc. were unsuccessful and their suits dismissed.
Non merchantable title means title "suggestive of litigation", not that the property be currently in litigation