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News Brief: Marketable Title Doctrine Not Expanded to Include Environmental Contamination

Spring 1996

A recent decision by the United States Court of Appeals for the Seventh Circuit refused to find the presence of hazardous waste as a defect in ownership precluding a seller from conveying marketable title to real property. In HM Holdings, Inc. v. Rankin, the Seventh Circuit applied Indiana law finding that the phrases "As Is" and "As Is Where Is" contained in a disclaimer within a Buy-Sell Agreement, acted to disclaim implied warranties, including the implied warranty of marketable title.

While the buyer in this case agreed to the disclaimer language, he alleged that hazardous waste on the property made the seller incapable of conveying marketable title constituting a failure of consideration. The Court rejected what it characterized as a "novel argument" and observed that every court that had addressed the issue refused to expand the marketable title doctrine by making the presence of hazardous waste an encumbrance on title. The Court refused to shift the burden of diligent investigation and disclosure of environmental contamination to sellers, stating that the buyer’s remedy would have been to include an environmental contingency clause within the contract or to insist warranties against such conditions.

While the court refused to expand Indiana law, it did so in large part because it could find no current Indiana support for such an expansion. The court distinguished an Illinois case, Jones v. Melrose Park National Bank. The seller in Jones had given the buyer an express warranty that he had received no notice of violations with respect to the real estate, when in fact he had. Because of this, the Seventh Circuit stated, the Illinois Court of Appeals could find that the seller was precluded from tendering marketable title. In the HM Holdings case, the buyer alleged no similar facts and truly seems to have hoped for a judicial expansion of the marketable title doctrine which the federal court refused to make.

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