Chapter 17 - § 17.6 • CONVEYANCE IN FULFILLMENT OF CONTRACT

• Jurisdiction: Colorado

§ 17.6 • CONVEYANCE IN FULFILLMENT OF CONTRACT

An agreement to convey, unless otherwise provided, obligates conveyance of title in fee.¹⁵⁹ The Colorado Court of Appeals has said that "good title in fee simple means the legal estate in fee, free and clear of all claims, liens, and encumbrances whatsoever, 'uniting all the elements constituting ownership, including right of possession and right of property.'"¹⁶⁰ A purchase is not consummated until there is a conveyance.¹⁶¹

§ 17.6.1—Escrows¹⁶²

For an arrangement to be an escrow, there must be sufficient parties, a proper subject matter, consideration, and a contract; deposit pursuant to the contract must be absolute and beyond the control of the depositor.¹⁶³ A written escrow agreement setting forth the conditions upon which a deed will be delivered is deemed to contain the entire agreement, and cannot be modified by a prior or contemporaneous oral agreement.¹⁶⁴

A deed delivered in escrow, subject only to the performance of the contract by the purchaser, cannot be withdrawn by the vendor nor can he or she forbid its delivery upon the purchaser's performance.¹⁶⁵ Upon an unconditional payment to the escrow agent according to the escrow conditions, the escrow agent is authorized to deliver the deed to the purchaser.¹⁶⁶

§ 17.6.2—Marketable (or Merchantable) Title

In every contract for the sale of real estate it is implied that the vendor will show a good marketable title before the completion of the contract.¹⁶⁷ (It is not necessary that the vendor be able to make good title at the time he or she enters into the agreement.¹⁶⁸ ) The purchaser has a right to insist upon marketable title unless he or she has expressly agreed to take such title as the vendor may be able to convey.¹⁶⁹ (A contract to convey a possessory title is not a contract to convey an absolute title.¹⁷⁰ ) The purchaser is responsible for examining title and informing the vendor of any defects. (In the absence of a contract so providing, the purchaser's failure to give the vendor written notice of title defects does not authorize the vendor to rescind the contract.¹⁷¹ ) It is then up to the vendor to correct the defects.¹⁷² Where no fixed time is specified for the remedying of such defects, the vendor has a reasonable time.¹⁷³ However, the vendor may be estopped from asserting this right where his conduct amounts to an election to stand on the title as tendered.¹⁷⁴ If the vendor does not clear the title to the property after the purchaser's request to cure pursuant to a contract provision, then the vendor may not rely upon a "time is of the essence" clause to assert that the purchaser defaulted by not tendering payment on the date provided for delivery in the contract.¹⁷⁵ Conversely, a purchaser, having announced his intention not to perform his contract under any circumstances, is in no position to complain that title was not merchantable prior to having allowed the vendor a reasonable time to make the same merchantable; such conduct on the part of the purchaser makes it unnecessary for the vendor to go through the useless process of making the title merchantable when it is made manifest that the purchaser would not accept title even though merchantable and meeting all of his requirements.¹⁷⁶

If a purchaser can be furnished suitable assurances that by application of a definite sum no greater than the unpaid purchase price at closing an encumbrance will be released unconditionally, the purchaser cannot contend successfully that the existence of the encumbrance causes a breach of the vendor's agreement to convey marketable title.¹⁷⁷ But this rule is not applicable where the purchaser is given only oral assurance that releases of the encumbrance will be forthcoming and is not advised of the complex and conditional nature of the release agreements. Where a lien is to be released at closing, the vendor must have at least written confirmation that the lienholder has agreed to release the lien upon payment of the proceeds available from closing.¹⁷⁸ In the absence of a contract provision so requiring, the vendor is not required to provide title insurance.¹⁷⁹

A marketable title is (1) a title which is fairly deducible of record and not depending on matters of parol,¹⁸⁰ (2) a title free from reasonable doubt,¹⁸¹ (3) a title that is reasonably free from such doubts as will affect the market value of the estate,¹⁸² (4) one which a reasonably prudent person with knowledge of all the facts and their legal bearing would be willing to accept,¹⁸³ (5) a title such as to make it reasonably certain that it will not be called into question in the future so as to subject the purchaser to the hazard of litigation with reference thereto.¹⁸⁴ The party claiming that the title is marketable has the burden of proving with reasonable certainty that litigation will not occur.¹⁸⁵

Title evidenced by a receiver's receipt properly executed by officers of the United States is marketable.¹⁸⁶ The fact that property is located in a special district is not a defect in the title.¹⁸⁷ Title to a unit in a common-interest community is not rendered unmarketable or otherwise affected by reason of an insubstantial failure of the declaration to comply with the Colorado Common Interest Ownership Act.¹⁸⁸

Title based upon a judicial decree is not marketable until the decree is final. Thus, where necessary parties defendant were not personally served and have the right to appear and have the judgment set aside, the decree is not final as to those parties until the time for setting aside the decree has elapsed.¹⁸⁹

A defective record title¹⁹⁰ or one requiring litigation to establish it¹⁹¹ is not marketable. It has been held that a tax title is not a marketable title.¹⁹² A mineral reservation renders the title unmarketable,¹⁹³ as does an oil and gas lease.¹⁹⁴ A dedicated street, shown on a plat, renders title unmarketable.¹⁹⁵ The purchaser's knowledge of the existence of the defect does not excuse the vendor from conveying the title bargained for.¹⁹⁶

In Federal Farm Mortgage Co. v. Schmidt,¹⁹⁷ it was held that title by adverse possession under the predecessor of C.R.S. § 38-41-111(1) was marketable. In discussing the element of possession, the court said:

[The plaintiff] also has to prove that he is in actual possession of the real estate. In the record before us this is stipulated and admitted by the parties. The fact, however, is not shown by the abstract of title. Possession of real estate is not shown by an abstract in any case, no matter how perfect the record title is. It is not marketable unless the record owner, or someone claiming under him, is in actual possession.

This seems clearly to recognize that, far from being "fairly deducible of record and not depending on matters in parol," only the stipulation and admission of the parties in the context of the litigation established the marketability of the title.

A judgment lien does not render title to real property unmarketable where the proceeds of the sale may be used to discharge the lien.¹⁹⁸ However, if the indebtedness secured by the lien exceeds the purchase price, the title is considered to be unmarketable, thus putting the vendor in default.¹⁹⁹

If the purchaser has bargained for an unencumbered title, he or she is not bound to take one which is doubtful or defective²⁰⁰ and he or she is under no obligation to make or tender payment until such title is tendered by the vendor.²⁰¹ If the vendor cannot furnish, or refuses to furnish, marketable title when due, or in a reasonable time, the purchaser may rescind, defend a suit for the unpaid purchase price, and recover what he or she has paid.²⁰² A tender and demand on the part of the purchaser is essential where the defect in the vendor's title could have been cured. In order to justify failure to appear at closing, the purchaser must demonstrate that it would have been impossible or impractical for the vendor to have cured the defect in title.²⁰³

Although a marketable title is required in equity in a suit for specific performance by a vendor against a purchaser, in an action at law by the purchaser for breach of contract it must be shown not merely that the title is not marketable but that it is bad.²⁰⁴

§ 17.6.3—Vendor's Lien

When one person sells real property to another in such manner that the legal title vests in the purchaser, and the consideration for the sale is not paid or secured, the vendor has a lien upon the land for its payment.²⁰⁵ The lien exists as a matter of law, regardless of any provision in the contract.²⁰⁶ A vendor's lien is valid against all purchasers with notice that the purchase price has not been paid.²⁰⁷ A vendor need not give notice of nonresponsibility under the mechanic's lien statute where the mechanic or materialman has knowledge of the existence of the vendor's lien.²⁰⁸ The vendor's lien attaches to the interest of the purchaser in the premises,²⁰⁹ and if an executory contract has not been performed in any way by the purchaser, there is nothing to which the lien can attach.²¹⁰ A fortiori, if the contract in question is...