Also known as: adverse claims
Written by attorneys — see sources below.
A competing assertion of a property right or interest that conflicts with the title or possession asserted by another. Such a claim creates reasonable doubt about ownership when recorded or known to a purchaser. The presence of an unresolved adverse claim prevents the conveyance of marketable title and exposes a transferor or obligor to potential double liability.
Dusk Plastics contracted to purchase a factory from Allied Production. A title search revealed a decades-old recorded option allowing a former tenant to repurchase part of the parcel. Allied could not locate the option holder to obtain a release. Dusk refused to close, treating the outstanding interest as rendering title unmarketable.
American Banana alleged that Costa Rican officials seized its plantation and supplies under orders from the local government. The government ratified the seizure and retained possession. American Banana's claim for damages arising from the loss failed because the acts were taken under an asserted governmental right.
The defendant, a New Jersey corporation organized in 1899, had bought the property and business of several of its previous competitors with provision against their resuming the trade. It made contracts with others regulating the quantity to be purchased and the price to be paid. It acquired a controlling amount of stock in still others. All of this was done with the intent to prevent competition and to control and monopolize the banana trade. It also organized a selling company of which it held the stock. By agreement the company sold at fixed prices all the bananas of the combining parties. In 1903 McConnell started a banana plantation in Panama, then part of the United States of Colombia. He began to build a railway which would afford his only means of export. Both actions were in accordance with the laws of the United States of Colombia. The defendant notified McConnell that he must either combine or stop. Two months later the governor of Panama recommended to his national government that Costa Rica be allowed to administer the territory through which the railroad was to run. In November 1903 Panama revolted and became an independent republic declaring its boundary to be that settled by the award. In June 1904 the plaintiff, an Alabama corporation organized in 1904, bought out McConnell and went on with the work as it had a right to do under the laws of Panama. But in July Costa Rican soldiers and officials seized a part of the plantation and a cargo of supplies and have held them ever since and stopped the construction and operation of the plantation and railway. In August, one Astua, by ex parte proceedings, got a judgment from a Costa Rican court declaring the plantation to be his. Although the proceedings were not within the jurisdiction of Costa Rica and were contrary to its laws and void, agents of the defendant then bought the lands from Astua. The plaintiff has tried to induce the government of Costa Rica to withdraw its soldiers. The plaintiff also has tried to persuade the United States to interfere but has been thwarted in both by the defendant and has failed. As a result of the defendant's acts the plaintiff has been deprived of the use of the plantation and the railway and the plantation and supplies have been injured. The Circuit Court dismissed the complaint upon motion as not setting forth a cause of action. This judgment was affirmed by the Circuit Court of Appeals. The case then was brought to this court by writ of error.
View caseThe United States sued to recover assets held by a New York bank after the Soviet government confiscated Russian-owned accounts and assigned the claims to the United States. No adverse claimant appeared in the action. The Court recognized the assignment but expressly left open the possibility that third parties could later assert competing interests in the fund.
In 1907 the First Russian Insurance Co., organized under the laws of the former Russian Empire, opened a New York branch and deposited assets with the New York Superintendent of Insurance to secure claims arising from its New York business. In 1918 and 1919 the Soviet Government promulgated decrees that nationalized the insurance business, declared all property of Russian insurance companies to be state property wherever situated, and cancelled the companies' debts. The New York branch continued operations until 1925, when respondent, the New York Superintendent of Insurance acting as liquidator, took possession of its assets. All domestic creditors were paid in full, leaving a surplus exceeding one million dollars. In 1931 the New York Court of Appeals directed the liquidator to pay allowed claims of foreign creditors who had filed attachments and then to distribute any remaining balance to a quorum of the company's directors. On November 16, 1933, the United States recognized the Union of Soviet Socialist Republics and, as part of that recognition, received the Litvinov Assignment. The Soviet Government released and assigned to the United States all amounts due or that might become due from American nationals, including amounts due to the Soviet Government as successor to prior Russian governments or to the nationalized insurance companies. The United States first sued in federal district court to recover the surplus; that court action was stayed and the United States was remitted to the New York courts. Its motion to intervene in the ongoing state liquidation proceeding was denied. The United States then commenced the present action in the New York Supreme Court against the liquidator and certain policyholders and creditors, seeking a judgment that it was the sole owner of the surplus fund. In 1937 the Soviet Commissariat for Justice issued an official declaration stating that, by virtue of the November 28, 1918 decree, the funds and property of former insurance companies constitute the property of the State irrespective of whether the property was situated within the territorial limits of the R.S.F.S.R. or abroad. The New York courts dismissed the complaint on the authority of their earlier decision in the Moscow Fire Insurance case; the Appellate Division affirmed without opinion and the New York Court of Appeals affirmed per curiam.
View caseAn adverse claim renders title unmarketable when it creates reasonable doubt that a prudent purchaser would accept. A recorded option or unreleased encumbrance that cannot be cured before closing supplies such doubt. The buyer may then refuse to close and seek rescission or damages.
Supporting sources
An adverse claim is any competing assertion of a right to the property or fund. A lien is one specific type of encumbrance. Both can trigger an obligor's duty to withhold payment until the conflict is resolved or interpleader is used.
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A person has notice when it knows of the claim, has reason to know from available facts, or has a duty to investigate that would reveal the claim. Actual knowledge is sufficient but not always necessary.
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Without statutory protection, the bank pays at its peril. It must promptly notify the depositor and hold the funds for a reasonable time to allow the claimant to sue. Many states permit continued payment unless the claimant supplies indemnity or obtains an injunction.
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…"In so holding, we deal only with the case as now presented and with the parties now before us. We do not consider the status of adverse claims, if there be any, of others not parties to this action. And nothing we have said is to be construed as foreclosing the assertion of any such claim to the fund involved, by intervention or…