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Keown v. West Jersey Title and Guaranty Co.

Decided: July 7, 1978.


On appeal from Superior Court, Law Division, Camden County, whose opinion is reported at 147 N.J. Super. 427.

Matthews, Crane and Antell.

Per Curiam

The facts of this case are set forth in the trial judge's opinion, which is reported at 147 N.J. Super. 427, 431-433.

The trial judge decided that plaintiff's lack of authority to invest in real estate created a defect in his title and rendered it unmarketable, 147 N.J. Super. at 436; that the exemption for defects created by the insured did not cover

accidental or innocent conduct of the insured, so conduct of this type causing a defect would not prevent recovery on the policy, 147 N.J. Super. at 439; that plaintiff's conduct was no worse than simple negligence, so it was not conduct that would exempt the resulting defect from coverage, 147 N.J. Super. at 443, and that the title company was estopped from denying liability because it represented to Keown's secretary on the telephone that Keown had the "right to take title." 147 N.J. Super. at 445.

A marketable title is one that is relatively free from doubt, such that in a suit for specific performance a court would compel the prospective purchaser to accept the title. 4 American Law of Property § 18.7 at 670 (1952). If it is reasonably probable that the purchaser would be exposed to litigation not of a frivolous nature concerning the title, or would have to bring an action to quiet title, then specific performance would be denied to the prospective seller and the title would be considered unmarketable. Tillotson v. Gesner , 33 N.J. Eq. 313, 326-327 (E. & A. 1880); Gaub v. Nassau Homes, Inc. , 53 N.J. Super. 209, 223 (App. Div. 1958).

Marketable title has also been defined as a title free from reasonable doubt, that which a reasonable buyer would be willing to accept, or which is "salable." Bier v. Walbaum , 102 N.J.L. 368, 370 (E. & A. 1926).

When a trustee breaches his trust by purchasing property that is not within his authority to purchase, the beneficiaries have the options of compelling him to replace the trust funds with interest or to hold the property subject to the trust. 3 Scott, Trusts (3 ed. 1967), § 210 at 1695-1696; Restatement, Trusts 2d, § 210 (1959). If the beneficiaries charge the trustee with the amount he spent, they can enforce an equitable lien on the property as security for their claim. However, this does not prevent the trustee from disposing of the property. A trustee takes the risk of acting ultra vires , and if he does so he will be held personally liable for any loss to the trust. Dickerson v. Camden Trust Co. , 140 N.J. Eq. 34, 44 (Ch. 1947), mod. on other grounds 1 N.J.

459 (1949); Conover v. Guarantee Trust Co. , 88 N.J. Eq. 450, 458-459, 463 (Ch. 1917), aff'd 89 N.J. Eq. 584, 585 (E. & A. 1918). Because he is personally subject to liability for any losses, he is not required to hold the property in case it might be advantageous for the trust, but is permitted to dispose of it. 3 Scott, op. cit. , § 210 at 1697-1698. Under those circumstances it can hardly be said that a trustee in this position will be unable to pass good title.

A trustee's lack of authority under the trust instrument to purchase real estate does not void the conveyance to him. We see no reason, then, that his title should be impaired. Because of the possibility of an equitable lien held by the beneficiaries it might be prudent to arrange for them to release their claims by signing the deed, but such does not make the title unmarketable. The beneficiaries are not adverse parties but are the beneficial owners through the trustee. Since they challenged the trustee's powers in court and received an order surcharging him, they have obviously chosen the option of repudiating the purchase and cannot make a claim on the property at a later date.

All of the cases we have found in which unmarketability of title resulted involved a defect which would give rise to some kind of adverse claim on the part of third parties. In Gaub v. Nassau Homes, Inc. , 53 N.J. Super. 209 (App. Div. 1958), the description in the deed could be read two ways, making a difference of 25 acres in the plot, and an heir of a grantor far back in the chain of title could claim that questionable acreage. In United States v. Roebling , 244 F. Supp. 736, 744 (D.N.J. 1965), the seller's deed was unclear and could mean that there was a reversionary interest in an earlier grantor and that the prospective seller did not have a fee simple. Gravino v. Gralia , 18 N.J. Super. 241 (Ch. Div. 1952), involved restrictive covenants on the use of the property which might ...

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