Also known as: good & merchantable title · merchantable title · good merchantable title · marketable title
Written by attorneys · grounded in primary & secondary sources — see below
An obligation in a contract for the sale of land requiring the seller to deliver title that is free from reasonable doubt and that a reasonably prudent purchaser with full knowledge of the facts would accept. Title defects such as unreleased liens, breaks in the chain of title, or outstanding interests may render the title unmarketable and allow the buyer to rescind or refuse performance if the seller cannot cure by closing. Some contracts substitute the less demanding standard of insurable title, which a reputable title insurer will cover at standard rates.
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Dusk Plastics Corporation contracted to purchase an aging factory from Allied Production Corporation. A title search revealed a recorded option allowing a former tenant to repurchase part of the property. Allied could not locate the option holder or obtain a release within the contract's cure period. Dusk refused to close, and the court permitted rescission because the outstanding interest created reasonable doubt about clear ownership.
Gino Giordano agreed to sell land to Gabriella Gomez under a contract requiring good and merchantable title. A recorded UCC fixture filing remained unreleased at closing despite the seller's claim that it covered only personal property. Gomez declined to perform because the filing created an apparent encumbrance on the realty. The buyer could rescind when the seller failed to cure the defect before the deadline.
Genesis Pharmaceuticals contracted to buy property from Greenleaf Farms with a clause demanding marketable title. A title commitment listed an old easement as a standard exception and offered coverage at ordinary rates. Genesis refused to close because the easement raised doubt about planned expansion. The seller's tender of insurable title did not satisfy the stricter marketable-title obligation.
Unreleased liens, breaks in the chain of title, outstanding interests such as easements or covenants, and recorded adverse claims create reasonable doubt that prevents a prudent purchaser from accepting the title. The buyer may rescind if the seller cannot cure the defect by closing.
Supporting sources
No. When the contract expressly demands marketable title, the seller must satisfy the objective standard of freedom from reasonable doubt. A title insurer's willingness to cover an encumbrance at standard rates does not remove the underlying defect or discharge the obligation.
…convey the above described real estate to the second party by Warranty Deed with an abstract of title, certified to date showing good merchantable title or an Owners Policy of Title Insurance in the amount of the sale price, guaranteeing said title to party of the second part, free and clear of all encumbrances except special taxes subject,…
…previously given by the vendors, was acknowledged. The vendors were obligated, upon payment in full by the purchasers, to convey marketable title
…cleanup costs. Plaintiffs’ position, however, is dependent upon their view that California courts have adopted a definition of
…by Ms. Elrod’s undue influence, including, and in particular, the damages resulting from Ms. Waddle’s inability to convey Regent marketable title
Supporting sources
Yes. A recorded option that remains of record and cannot be cleared within the cure period constitutes an outstanding adverse claim. The resulting uncertainty about clear ownership renders title unmarketable and supports rescission.
Supporting sources
The buyer may refuse to close and pursue rescission or damages. Marketability focuses on whether a prudent purchaser would accept the title without reasonable doubt, a standard insurance coverage alone does not meet.
Supporting sources