Opinion
No. 75-135
Decided September 23, 1975.
In action to recover earnest money paid under real estate receipt and option contract, trial court found title to be marketable and therefore denied refund. Plaintiff appealed.
Reversed
1. VENDOR AND PURCHASER — Marketability of Title — Party Asserting Validity — Burden — Reasonable Certainty — Litigation Not Occur. In disputes relative to the marketability of title to real property, the standard to be applied is not that the complainant must show reasonable probability of litigation in order to have the title held unmarketable, but rather that the party asserting the validity of the title must show with reasonable certainty that litigation will not occur; that is, title must be such as to make it reasonable certain that it will not be called into question in the future so as to subject the purchaser to the hazard of litigation with reference thereto.
2. Marketability of Title — Circumstances — Purchaser's Title — Subject — Hazard of Litigation — Title Unmarketable. In dispute relative to the marketability of title of certain real property, even assuming arguendo that the law is that the description of the property by use of a "monument" would control over a conflicting metes and bounds description, still, if the purchaser were to complete the transaction, the only way that he could avail himself of this principle of law would be either to seek quiet title decree against the county based thereon, or to invoke it as a defense in any future challenge to his title, and in either event, the purchaser is subjected to the "hazard of litigation," and thus the title is not marketable.
Appeal from the District Court of Morgan County, Honorable Dean Johnson, Judge.
Allen P. Mitchem, Cheryl Turk, James E. Mitchem, for plaintiff-appellant.
George A. Epperson, Donald F. McClary, Stanley I. Rosener, Edward L. Zorn, for defendants-appellees.
Plaintiff, Ervin I. Michaelson, appeals from a judgment entered in favor of defendants, Elmer and Stanley L. Tieman, in Michaelson's action for return of earnest money paid under a real estate receipt and option contract. We reverse.
On April 2, 1973, Michaelson, as purchaser, and Stanley Tieman, on behalf of Elmer Tieman, as seller, executed a receipt and option (the contract) for the purchase and sale of certain real property located in Morgan County. Upon execution of the contract, the purchaser delivered to the seller a check for $1,000 as earnest money deposit. The contract required the seller to furnish to the purchaser either an abstract of title or a title insurance commitment by April 17, and specified that if "merchantable title be not shown by said abstract or title commitment . . . within 15 days, the amount received . . . is to be refunded, but if a clear title be shown, and if payment is not made or tendered as above mentioned, then the money . . . is to be held as liquidated damages . . . . "
An abstract of title was duly provided. Any entry therein indicated that in 1910 one of seller's predecessors in title conveyed to the Morgan County Board of County Commissioners certain property described by metes and bounds and also described an an extension of Pearl Street in the town of Corona (now Wiggins). The land as described by metes and bounds overlaps the subject property of the present contract. On the other hand, an extension of Pearl Street as it actually exists (rather than as it appears on the plat of the town) does not overlap and, instead, is adjacent to and not on seller's property.
The purchaser took the abstract to a title insurance company and requested a title commitment. The commitment as issued contained a requirement that a quitclaim deed be obtained from the Morgan County Commissioners conveying to the purchasers all that part of the subject property included within the metes and bounds description of the 1910 deed referred to above. The seller's attorney advised the title insurance company that in his opinion the alleged defect in title was more apparent than real, and that the requirement should be deleted. The company refused to do so. Purchaser then demanded the return of his deposit. Seller, standing on the title as shown in the abstract, refused to comply. Purchaser then brought this action in September 1973 for refund of his deposit.
The case was tried to the court in November 1974. It found the facts to be essentially as outlined above, with an additional finding that there was no evidence that Morgan County had ever asserted any claim over the disputed property in the 64 years since it was deeded to the county. The record also includes an affidavit from one of the three county commissioners, on behalf of all three, to the effect that the county claimed no interest in the land and would execute a quitclaim deed upon request. A copy of this affidavit was furnished to the purchaser in January 1974, but there is nothing in the record to show that any deed was requested or obtained by either party. The court concluded that the defect asserted by the purchaser "is not of such nature as to evince a reasonable probability of litigation by the Board of County Commissioners to enforce an adverse interest in the real property in question" and, therefore, it ruled that the seller's title was marketable and purchaser was not entitled to a refund of his deposit. We do not agree.
[1] The standard to be applied in disputes of this type is not that the complainant must show "a reasonable probability of litigation" in order to have the title held unmarketable, but rather that the party asserting the validity of the title must show with reasonable certainty that litigation will not occur. "The title must be such as to make it reasonably certain that it will not be called into question in the future so as to subject the purchaser to the hazard of litigation with reference thereto." Morley v. Gieseker, 142 Colo. 490, 351 P.2d 392.
[2] The seller contends that the description by "monument" (here the "extension of Pearl Street" with such extension to be from where Pearl Street actually ends on the ground regardless of how it may be platted) prevails by law over a conflicting metes and bounds description, and that, therefore, there is no impairment of marketability. Assuming, arguendo, that the law is that such a "monument" controls over metes and bounds, still, if the purchaser were to complete the transaction, the only way he could avail himself of this principle of law would be either to seek a quiet title decree against the county based thereon, or to invoke it as a defense in any future challenge to his own title. In either event, the purchaser is subjected to the "hazard of litigation" referred to in Morley, supra.
The instant case is controlled by White v. Evans, 120 Colo. 200, 208 P.2d 922. In White, a record examination of the title to the land being bought and sold under the contract revealed a previously recorded subdivision plat by which some of the subject property had been dedicated to the county for public streets and alleys. No legal steps had ever been taken to vacate such streets or alleys, although none of them had ever been physically laid out or otherwise marked on the ground. On discovery of this record defect, the purchasers demanded the return of their earnest money and, upon the seller's refusal, initiated a lawsuit. After the commencement of the case, but prior to its disposition in the trial court, the sellers instituted a separate action and obtained a decree enjoining the county from opening any thoroughfare over or across the subject property. Nevertheless, our Supreme Court, defining "marketable title" as "a title that is fairly deducible of record and not depending on matters resting in parol," held that, at the time the purchasers demanded return of their deposit, the title tendered by the sellers was not merchantable, and that the purchasers had the right to refuse performance and to demand rescission of the contract.
The judgment is reversed and the cause is remanded with directions to enter judgment in favor of the plaintiff for the amount of his deposit plus interest and costs.
JUDGE PIERCE and JUDGE STERNBERG concur.