by David W. Paugh

In Humphries v Ables, 789 N.E.2d 1025 (Ct. App. 2003), the Indiana Court of Appeals held that title to real estate may be marketable even though the property is not .

Humphries entered into a contract to sell real estate used as a liquor store to Ables. Prior to being used as a liquor store, the property had been the site of a gasoline station. The underground storage tanks had never been removed; rather they had been filled with water and remained on site. Ables attempted to sell the real estate to a third party who required a Phase I environmental study as a condition of its purchase. Humphries never provided such a study, the third party sale fell through and Ables vacated the property. Humphries brought suit and was awarded a judgment against the Ables for the balance of the purchase price and attorney’s fees by the trial court. On appeal, Ables argued that they could not receive marketable title to the real estate as required by the contract because the presence of the tanks and possible contamination made the property unsellable. Indiana law defines “marketable title” as “(T)itle’ which has no defects of a serious nature, and none which affect the possessory title of the owner….” Staley v. Stephens, 404 N.E.2d 633, 635 (Ind. Ct.App. 1980) as found at Humphries, 279 N.E.2d at p1032. With respect to a marketable title there is a distinction between the condition of title to the property and the condition of the property itself: “(t)here is a difference between economic lack of marketability, which relates to physical conditions affecting the use of property, (and) title marketability, which relates to defects affecting legally recognized rights and incidents of ownership. One can hold perfect title to land that is valueless; one can have marketable title to land while the land itself is unmarketable.” McManus v. Rosewood Realty Trust, 143 N. H. 78, 719 A.2d 600, 601 (1998) as quoted by the Humphries Court at 789 N.E.2d at 1032. The court found that environmental contamination related to the physical condition of the property and not to the rights and incident of ownership. Accordingly, the Court held that marketable title may be transferred even if there is contamination upon the property and affirmed the judgement in favor of the Sellers.

What is the moral of Humphries? As noted by the Court, to protect themselves, a buyer of real estate “should utilize all resources available, including inspections, legal representation, and contingency clauses in contracts, in order to prevent harm to themselves from a property later being discovered to have a problem of contamination.” Humphries, 789 N.E2d at p. 1034.