Summary of Conklin v. Davi, Supreme Ct. of NJ (1978)

Parties: P – Appellant – Seller – Owner contracted to sell the land and now wants specific performance

D – Appellee – purchaser- claims there are defects in the title, seeks rescission

Cause of action/remedy sought: PL instituted an equitable action against DF for specific performance of the contract, but abandoned this before trial.  DF counter-claimed for rescission to secure the return of their down payment.

(Rescission is frequently connected to restitution, leaving the buyer with a claim to recover the deposit.  You cannot bring an action fore rescission and then sue for breach of K, because there is no longer a K.  You cannot get attorney fees unless there is a statute or contract providing that you can get attorney’s fees.)

Procedural History: At the conclusion of purchasers’ case, trial court granted sellers motion.  Purchaser appealed and Appellate division reversed and ordered judgment in favor of purchasers.  The Supreme Court found the trial court’s judgment in purchasers favor was clearly erroneous and reversed and remanded to the Superior Court.

Facts: PL contracted to sell residential property to DF, provided the title was marketable and insurable. One lot of the parcel PL claims to hold and be able to convey by adverse possession. . Purchasers believe Seller can not force such a title on them, as it would not be marketable or insurable.  The purchasers argue that the sellers should have perfected record title before the closing date.

Issue(s): Under NJ property law, does the fact the part of the parcel is held by adverse possession make the title unmarketable, hence voiding the contract?

Holding: Yes.  In a suit where the purchaser seeking rescission has shown that record title is outstanding in some person other than the seller, the burden should then shift to the seller to establish his title by adverse possession.  This is what the Superior Court’s issue should be.

Court’s Rationale/Reasoning:  The rule in essence says that if a party takes title to property, they should know what kind of title they are getting: perfect is the higher standard than marketable.  Here, the contract said “marketable and insurable,” which put the buyers on notice that they were not getting perfect title, and that they should have the duty to check the record to see why it was imperfect, if it was not.

Although there are statements indicating seller will not be able to establish it, marketability will be determined by (1) the outstanding claimants could not succeed were they to in fact assert a claim and (2) there is no real likelihood a claim will ever be asserted.  Sellers also abandoned their original claim for specific performance, which left the trial court with only one issue to rule upon.

Rule: When a prospective seller’s title is grounded upon adverse possession, or contains some apparent flaw of record, they can take steps to perfect the record title (quiet title, cancel outstanding encumbrances, etc.), or if it is marketable but not perfect, may choose to sell the land on the open market.  This second standard is only available where the K of sale does not require the vendor to give a title valid of record, but provides for a less stringent requirement, such as marketability or insurability.

The law will imply that that title must be marketable, even when the contract is silent upon the point.

In an action where title is sufficiently doubtful to impel a court of equity to deny specific performance to the seller, the buyer may recover his down payment in an action at law.

Title resting in adverse possession, if clearly established, will be held marketable.

Did court avoid issues?: No.

Dicta: Marketable title v. perfect title of record. 2 pages worth, the basics of which are that marketable title is a lower standard than perfect title of record.