Dr. Lohmeyer, plaintiff, agreed to purchase property from the Bowers, defendants, per a contracted warranty deed. The deed transferring the sale of property warranted that the property was subject to all restrictions and easements of record applying to the property. The plaintiff’s lawyer examined the title and determined that two municipal zoning ordinances were violated. In particular, the house on the lot was only one story high, whereas the ordinance requires that all houses be two stories in height, and the house was placed too closely to the border of a neighboring property. After learning this, Dr. Lohmeyer informed the defendant of the violations, to which Bowers offered to purchase and convey additional property behind the original property, thereby fixing the second violation. Lohmeyer refused the offer and brought suit against the defendant seeking to rescind the contract and be refunded his deposit on the land. The defendant countered demanding specific performance of the contract.
The trial court held in favor of the defendants and awarded specific performance of the contract. The plaintiff now appeals the decision.
The issue is whether the property is subject to encumbrances or other burdens making the title unmerchantable and if so whether they are such as are excepted by the provision of the contract stating that it is subject to all restrictions and easements of record applying to the property.
Municipal restrictions do not render a title unmerchantable, but private restrictions on what may be built on land do. To render the title to real estate unmarketable, the defect of which the purchaser complains must be of a substantial character and one from which he may suffer injury. Mere immaterial defects that do not diminish the quality, quantity, or value of the property do not constitute grounds for the purchaser to reject title. The facts must be known at the time which fairly raise a reasonable doubt as to the title; a mere possibility or conjecture that such a state of facts may be developed at some future time is not sufficient.
First off, the court points to Peatling v. Beard, in which the Supreme Court of Kansas ruled that a merchantable title in real estate was one free from reasonable doubt. In other words, a title that carried the potential of future litigation with it was reasonably doubtful and, therefore, unmerchantable. The court also states that municipal zoning ordinance violations and private covenants do not typically make a title unmerchantable. However, this case involves a property specifically in violation of two zoning restrictions, which unreasonably exposes the purchaser (Dr. Lohmeyer) to the potential for litigation. In this way, the title was unmerchantable and the sale, thus, must be subject to rescission. The express provision in the contract, stating that the property was subject to all applicable restrictions, does not prohibit the sale from being void because the structure on the property itself violated the two restrictions and thereby rendered it void. Any efforts to render the sale merchantable would come at a substantial cost to Lohmeyer and would materially alter the property. Therefore, the property would be different than the one originally described in the contract, as a result rendering the contract invalid.
The Supreme Court of Kansas reversed the trial court’s judgment and directed that the contract of sale should be cancelled.