Bathla v. 913 Mkt., LLC
200 A.3d 754
Del.2018Background
- 913 Market contracted to sell real property; InvestUSA earlier signed a contract to buy the same property (vendee's equitable interest) on June 15, 2016.
- InvestUSA never recorded its contract (no acknowledgement), and its purported closing failed for reasons not developed in the record.
- Bathla signed a later purchase contract (described as a backup that would become primary upon termination of InvestUSA's contract) and sought to close in September 2016.
- First American (title agent/insurer engaged by 913 Market) informed parties it would take an exception for the InvestUSA contract in Bathla’s owner’s title policy, treating InvestUSA’s contract as an encumbrance.
- 913 Market’s counsel insisted the InvestUSA contract was terminated and refused to extend settlement; Bathla had actual notice of InvestUSA’s contract and contested the exception.
- Superior Court granted summary judgment for 913 Market on the theory that InvestUSA had not perfected a claim on title by filing a lis pendens, so there was no cloud on title.
Issues
| Issue | Plaintiff's Argument (913 Market) | Defendant's Argument (Bathla / InvestUSA) | Held |
|---|---|---|---|
| Whether InvestUSA’s unrecorded contract constituted an encumbrance that prevented delivery of marketable title | InvestUSA did not perfect a lis pendens; mere possibility of a claim is not an encumbrance; race statute would defeat any unrecorded claim | A person taking title with actual notice of an outstanding equitable interest takes subject to that equity; title exception was required | Superior Court relied on lis pendens/recording rule to find no cloud; dissent would reverse and remand to decide whether risk of litigation remained a viable encumbrance |
| Whether failure to file a notice of pendency (lis pendens) is dispositive when purchaser had actual notice | Non-filing is dispositive; recording statute governs priority | Actual notice makes lis pendens filing superfluous; notice — actual or constructive — binds subsequent takers | Dissent: actual notice controls; lis pendens doctrine should not negate encumbrance analysis |
| Whether First American reasonably required an exception in the title policy | Exception unnecessary if InvestUSA contract was terminated and risk insubstantial | Title agent reasonably regarded the InvestUSA contract as an encumbrance requiring an exception | Title agent documented belief that exception was necessary; Superior Court nonetheless accepted recording-based reasoning |
| Whether summary judgment was appropriate without factual findings on why InvestUSA failed to close | Summary judgment appropriate because of recording/priority rules | Material facts exist about status and likelihood of InvestUSA’s claim; summary judgment improper | Dissent: reverse and remand for findings on whether the InvestUSA claim remained a substantial encumbrance at closing |
Key Cases Cited
- Cieniewicz v. Sliwka, 133 A. 695 (Del. Ch. 1926) (purchaser with notice takes subject to vendee’s equitable claim)
- Marsh v. Marsh, 261 A.2d 540 (Del. Ch. 1970) (equitable lien impressed where purchaser had notice of prior vendee’s interest)
- Handler Constr., Inc. v. CoreStates Bank, N.A., 633 A.2d 356 (Del. 1993) (restating rule that one taking title with notice of an equity takes subject to that equity)
- E. Sav. Bank, FSB v. Cach, LLC, 124 A.3d 585 (Del. 2015) (refusing to override Delaware’s pure race recording statute in the specific circumstances presented)