Legal Definitions - failure of title

Failure of title occurs when a seller attempts to transfer ownership of property, but their ownership is found to be defective, incomplete, or nonexistent. This means the buyer does not receive the full, clear, and undisputed ownership (or "title") that they expected and paid for. Essentially, the seller did not have the legal right to transfer what they purported to sell, leading to a significant problem for the buyer.

• Example 1: Real Estate with Undisclosed Co-owner

  A couple purchases a beautiful vacation home from a seller who presented themselves as the sole owner. After the sale is finalized and the new owners begin renovations, they receive a letter from an attorney representing the seller's estranged sibling, who claims to co-own the property through an inherited interest that was never legally resolved. The sibling's claim is valid and predates the sale.

  This illustrates failure of title because the seller did not possess full, clear title to the entire property. They only owned a partial interest, or perhaps no interest at all if the sibling's claim is superior. The buyers did not receive the complete, unencumbered ownership they were promised, as a significant defect in the seller's title has emerged.

• Example 2: Purchase of Stolen Goods

  An antique collector buys a rare, valuable sculpture from a private dealer at an auction, believing it to be a legitimate acquisition. Months later, law enforcement contacts the collector, informing them that the sculpture was stolen from a museum years ago and is now being recovered. The dealer who sold the sculpture never had legal ownership because it was stolen property.

  This is a classic example of failure of title. A thief (or someone who acquired goods from a thief) cannot transfer valid title to anyone, even an innocent buyer. The original museum still held the true title, and the dealer's attempt to sell the sculpture resulted in a failure of title for the collector, who must now return the artwork without having received valid ownership.

• Example 3: Business Equipment with Undisclosed Lien

  A small construction company purchases a specialized piece of heavy machinery from another business. The sales agreement states the machinery is sold "free and clear" of any encumbrances. However, a few months after the purchase, a bank attempts to repossess the machinery, revealing that the original seller had taken out a loan using the machinery as collateral and had defaulted on the payments. The bank's lien was never disclosed to the buyer.

  This demonstrates failure of title because the seller did not transfer the machinery free and clear of all claims. The bank held a superior legal interest (a lien) in the machinery, which means the buyer's ownership is encumbered and potentially subject to loss. The seller failed to deliver a title that was unburdened as promised.