Marketable Title Act Violates Contracts Clause
Relying upon the Contracts Clause in the state Constitution, the Indiana Supreme Court has held the state’s Marketable Title Act unconstitutional when applied to a possibility of reverter that exceeded the Act’s limitation.
Girl Scouts of Southern Illinois v. Vincennes Indiana Girls, Inc., No. 42S00-1210-PL-597 (May 14, 2013) .
The 1965 deed at issue provided that the properties “shall revert to [the grantor] if the same are not used for and as a Girl Scouts camping site and facilities for a period of forty-nine years from and after the date of [the deed].” The Marketable Title Act voids reversionary interests after 30 years. Forty-four years after the deed (2009), the grantee closed the Girl Scout camp and decided to sell the property. The grantor claimed title by reverter and the grantee claimed that the reverter had been abrogated by the Marketable Title Act.
The Court found that the possibility of reverter was just one of several deed provisions forming a “bundle of rights” that “shows that the parties’ central focus was to impose a contract obligation” on the grantee. Among these additional provisions was a prohibition on alienation during the 49-year period. Such a prohibition is normally unenforceable, but was valid in this instance due to the charitable nature of the conveyance. Because the provisions “touch and concern” the land, the Court held that they have “have significant social utility” and early termination “would substantially impair [the grantor’s] contract rights.”
COMMENT:
Because of its facts, the decision may seem applicable only to cases concerning charitable conveyances. It is possible, however, to envision scenarios where a non-charitable deed contains more than a “naked possibility of reverter.” Would such a deed also trigger a “contract” analysis? Of course, converting a property right into a contract right raises other potential problems, such as the manner in which the enforcement right is transferred to successors, or its transferability to third parties.
Many title company researchers rely on the provisions of an applicable Marketable Title Act to limit their search parameters. It will be interesting to see if other states with Marketable Title Acts adopt similar reasoning and the underwriting responses of title insurers.