Takeaway
In short, this case holds that a buyer may rescind when property is already in violation of building restrictions or land-use rules, because the resulting risk of enforcement makes title unmerchantable even if the buyer agreed to take the land subject to the restrictions themselves.
Lohmeyer agreed to buy Lot 37 in Berkley Hills Addition in Emporia from Carl and Anne Bower. The contract required the Bowers to provide a warranty deed and either an abstract showing good merchantable title or title insurance, free of encumbrances except recorded restrictions and easements. It also provided that, if the sellers could not deliver title as agreed, Lohmeyer’s earnest money would be returned and the contract canceled.
After receiving the abstract, Lohmeyer learned that the frame house on the lot stood only about 18 inches from the north lot line, although an Emporia ordinance required a three-foot setback. He also learned that recorded subdivision restrictions required a two-story residence on Lot 37, while the house was a one-story dwelling that the Bowers had moved onto the lot. Lohmeyer sought rescission and return of his $3,800 in payments. The Bowers sought specific performance. The district court entered judgment for the Bowers and ordered Lohmeyer to perform, and Lohmeyer appealed.
Issue #1
Whether the recorded subdivision restriction requiring a two-story residence remained enforceable after a prior tax-foreclosure sale and was violated by the house on Lot 37.
Holding
Yes. The restriction remained enforceable, and the one-story house moved onto Lot 37 violated it.
Reasoning
The restriction declared that residences on Lot 37 must be two-story homes and that the restrictions ran with the land. The Court construed the word “erected” broadly enough to include a house moved onto a restricted lot. Otherwise, an owner could evade the restriction simply by building elsewhere and relocating the structure.
The stipulated facts established that the dwelling was one story. The unfinished space beneath the roof did not make it a two-story residence merely because the house might have contained enough vertical room to be altered later. The covenant required a two-story residence as it stood, not a house capable of later conversion.
The prior tax-foreclosure proceeding did not establish that the restriction had been extinguished. The right to enforce the recorded restrictions belonged to the common grantor and to the other owners in the addition. Because the record did not show that those persons were parties to the foreclosure action, the Court could not conclude that their enforcement rights had been cut off.
Issue #2
Whether the Emporia setback ordinance was in force and was violated by the house placed 18 inches from the lot line.
Holding
Yes. The ordinance remained in force, applied to a house moved onto the lot, and was violated.
Reasoning
The Court gave “erected” in the ordinance the same practical reading it gave the word in the subdivision restriction: it included placing a building that had been constructed elsewhere onto the lot. Thus, moving the frame house onto Lot 37 did not avoid the three-foot setback requirement.
Nothing in the stipulated ordinances demonstrated that the setback provision had been repealed or displaced by later ordinances. Nor did the fire chief’s permit to move the house establish permission to place it within 18 inches of the lot line. The record did not show that the permit authorized a violation, or that the fire chief had authority to waive the ordinance’s express terms.
Issue #3
Whether existing violations of the ordinance and recorded building restriction made the sellers’ title unmerchantable, despite the contract’s exception for recorded restrictions and easements.
Holding
Yes. The existing violations rendered title doubtful and unmerchantable, and the exception for recorded restrictions did not require the buyer to accept the violations.
Reasoning
A merchantable title in Kansas is one free from reasonable doubt. A title is unmerchantable when a substantial defect exposes its holder to a real hazard of litigation or injury, rather than a merely speculative or immaterial concern.
The Court distinguished between the existence of a restriction and an existing violation of one. Municipal land-use regulations ordinarily are not encumbrances that alone make title unmerchantable, while private restrictive covenants generally are encumbrances. But even assuming the ordinance itself was not an encumbrance and the recorded private restrictions fell within the contract’s exception, the present violations created a distinct defect.
A purchaser who takes property subject to recorded restrictions accepts the restrictions as such; he does not necessarily agree to take property already in breach of them. Here, the buyer would receive a house vulnerable to enforcement proceedings by the city or neighboring owners. Requiring him to accept it would effectively compel him to buy a lawsuit.
Issue #4
Whether the Bowers were entitled to additional time to cure the defects under the contract’s provision allowing time to correct title imperfections.
Holding
No. The sellers could not cure the restrictive-covenant violation without requiring Lohmeyer to accept something materially different from what he agreed to buy.
Reasoning
The Court assumed, without deciding, that the setback problem might possibly be remedied by acquiring additional land. But the two-story-residence violation presented a separate and dispositive problem.
Correcting the height violation would require altering the house. That would force Lohmeyer to accept a property different from the one he contracted to purchase, rather than merely perfecting the promised title. The contractual opportunity to correct title imperfections did not authorize that result.