A marketable title to real estate is one that is free from reasonable doubt, and a title is doubtful and unmarketable if it exposes the party holding it to the hazard of litigation.
The vendors agreed to convey the subject property with an abstract of title showing good merchantable title, free and clear of all encumbrances. After the sale, it became clear that the house on the property violated a local ordinance providing that no frame building should be erected within three feet of a side or rear lot line. The vendee sought rescission of the real estate contract. The vendors sought specific performance of the contract. The district court required specific performance. The vendee sought review.
Was the property subject to an encumbrance that made the title unmerchantable?
The court held that the breach of the ordinance and another breach of the restrictions placed by a deed so encumbered the title to make the person holding the same to risk of litigation and make such title doubtful and unmarketable. Since the vendors had contracted to pass on such land to the vendee by warranty deed with an abstract of title demonstrating a valid merchantable title, the result was that the vendors couldn't pass on the title so contracted. Thus, the trial court ought to have rendered a judgment rescinding the agreement.