Also known as: adverse claims
Written by attorneys · grounded in primary & secondary sources — see 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.
Select any source to read its text and confirm it supports the definition.
The 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.
An 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.
Supporting sources
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.
Supporting sources
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.
Supporting sources
…"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…