Gibbs v. G.K.H., Inc.

• Decision Date: 09 November 1992
• Docket Number: No. 1948,1948
• Citation: 311 S.C. 103,427 S.E.2d 701
• Parties: Jimmy I. GIBBS, Appellant, v. G.K.H., INC., Respondent. . Heard
• Court: South Carolina Court of Appeals

Page 701

427 S.E.2d 701

311 S.C. 103

Jimmy I. GIBBS, Appellant, v. G.K.H., INC., Respondent.

No. 1948.

Court of Appeals of South Carolina.

Heard Nov. 9, 1992.

Decided Feb. 16, 1993.

Wallace A. Mullinax, Jr., and Thomas F. Dugas, Greenville, for appellant.

Roy McBee Smith, Spartanburg, for respondent.

CURETON, Judge:

Jimmy I. Gibbs, the appellant, brought this action for rescission of a sales contract and to recover earnest money of $44,250.00 which he had deposited with G.K.H., Inc., the respondent, after Gibbs allegedly discovered defects in title to the commercial property on which Gibbs had successfully bid at auction. The case was tried before the circuit court without a jury. The trial judge found in favor of the seller, G.K.H., and awarded damages in the amount of the deposit, plus accrued interest. We affirm in part and reverse in part.

An action to rescind a contract is in equity. Davis v. Cordell, 237 S.C. 88, 100, 115 S.E.2d 649, 655 (1960). The general rule is that for a breach of contract to warrant rescission, the breach must be so fundamental and substantial as to defeat the purpose of the contract. Smith v. First Provident Corp., 245 S.C. 509, 512, 141 S.E.2d 646, 647 (1965); Davis, 237 S.C. at 99, 115 S.E.2d at 654; Martin v. Carolina Water Service, Inc., 280 S.C. 235, 240, 312 S.E.2d 556, 560 (Ct.App.1984). Rescission is an appropriate remedy for a purchaser whose seller has contracted but is unable to provide marketable title because of defects in the title. To be marketable, a title need not be flawless. Rather, a marketable title is one free from encumbrances and any reasonable doubt to its validity. It is a title which a reasonable purchaser, well-informed as to the facts and their legal significance, is ready and willing to accept. New Freedom Corp. v. Brown, 260 Md. 383, 272 A.2d 401 (1971).

The Roebuck Lumber Co. site in Roebuck, South Carolina was sold at liquidation auction on March 4, 1989 by its owner, G.K.H., to Gibbs for $295,000.00. The contract of sale provided that the sale was "[s]ubject to all covenants or record [sic] (provided they do not make the title unmarketable)...." The contract further provided that the "[s]eller agrees to convey by marketable title and deliver a proper statutory warranty deed with dower duly renounced and free of encumbrances except as herein stated...." (emphasis added). The contract also contained a liquidated damages clause which provided that the $44,250.00 deposit would be forfeited upon Gibbs' default. The parties scheduled to close on April 4, 1989.

On March 30, 1989, Gibbs sent a letter to G.K.H. in which he requested an additional thirty days to close in order to address concerns regarding a possible encroachment of a building on the property onto a railroad right-of-way owned by CSX Transportation along with other concerns. ¹ These other concerns, which included a fence that encroached beyond the property line onto adjacent property as well as the presence of two underground storage tanks on the property, are not issues on appeal.

On April 4, 1989, G.K.H. agreed to extend the closing for thirty days. On April 5, 1989, Gibbs' attorney wrote to G.K.H., stating that Gibbs had elected to rescind the contract because the seller was unable to convey marketable title. On April 26, Gibbs' attorney wrote to G.K.H., suggesting that the parties would be able to close if G.K.H. would provide a quitclaim deed from the railroad for the encroachment of the building upon the right-of-way or if G.K.H. would provide a title opinion letter that did not take exception to the encroachment onto the railroad right-of-way, and if G.K.H. removed the storage tanks. G.K.H. removed the storage tanks at a cost of $4,500.00. Although G.K.H. provided a title opinion letter, Gibbs claimed at trial, and asserts on appeal, that it was not satisfactory. ²

On June 30, 1989, G.K.H. sold the Roebuck Lumber Co. site to another party, the Griffins, for $267,000.00, or for $28,000.00 less than Gibbs' bid. G.K.H. refused to return the deposit in accordance with the terms of the liquidated damages clause in the sales contract. Gibbs argued at trial, and asserts on appeal, that the reduced price in the sale to the Griffins reflects a concession by G.K.H. in regards to the effect of the encroachment on the marketability of the title.

The trial judge found that there was insufficient evidence to establish that the building encroached on the railroad right-of-way and that the alleged encroachment did not make the title unmarketable because there was no reasonable probability of litigation on this issue. Additionally, he found that, regardless, G.K.H. had established title to the alleged encroachment on the railroad right-of-way through both adverse possession under S.C.Code Ann. § 15-67-210 et seq and § 15-3-340, and common-law presumption of grant. He also concluded that G.K.H. had made a reasonable effort to find another purchaser, and that the liquidated damages clause was not in the nature of a forfeiture because G.K.H.'s actual damages included $4,500.00 spent to remove the storage tanks and the $28,000.00 reduced price at the subsequent sale. The trial judge granted judgment in favor of G.K.H. in the amount of the $44,250.00 deposit plus interest. ³

On appeal, Gibbs asserts that the trial judge erred by finding that the title was marketable despite the alleged encroachment of the building onto the railroad right-of-way, claiming that the only reasonable inference that could be drawn from the evidence is that the building encroaches on the right-of-way and makes the title unmarketable. Gibbs also argues that the judge erred by finding that G.K.H. had acquired title to the property through adverse possession and presumption of grant, and this finding was inappropriate where this action was not one to quiet title and where CSX Transportation, the alleged title owner of the right-of-way and an interested party, was not before the court.

I.

The trial judge found that there was insufficient evidence to establish that the building encroached on the railroad right-of-way and that the alleged encroachment did not make the title unmarketable because there was no reasonable probability of litigation on this issue. We agree.

A recorded deed from Moses Foster to the Greenwood, Laurens & Spartanburg Railroad Co., dated August 30, 1882, grants fee simple title to the land beneath and within 100 feet of each side of a railroad track not yet built. This deed refers to the right-of-way being given upon a parcel of land "hereinafter described" but omits a description.

The testimony of the Spartanburg Planning Director, and a map of Spartanburg County which he authenticated and which was compiled from maps of county roads in 1910, establishes the public road which lies between the Roebuck Lumber Co. site and the single railroad track was in existence in 1910. ⁴ Although the 1910 map does not depict a right-of-way, this road is within the 100 foot right-of-way alleged by Gibbs. This road closely parallels the railroad track; its presence suggests that at that time the railroad company had not acquired a right-of-way that extended onto the Roebuck Lumber Co. site because it would have been separated from this site by the public road.

The plat of a survey done for James A. Foster, G.K.H.'s predecessor in title, dated June 9, 1932, reveals a right-of-way line that runs parallel to the railroad track at a distance of 100 feet from the track, which was then owned by Charleston & Western Carolina Railway. The plat of a survey done for the Roebuck Gin & Lumber Co., G.K.H.'s predecessor in title, dated March 13, 1951, reveals the same line paralleling the railroad track owned by Charleston & Western Carolina Railway. The plat of a survey done in 1960 does not reveal a line that would suggest an encroachment, although it is argued that the building appears to be within 100 feet of the railroad track. The plat of a survey done in 1970 reveals a line that would suggest an encroachment by the building upon the railroad right-of-way. None of the plats state that they depict a railroad right-of-way.

In 1977, Roebuck Lumber Co. concluded a "spur track agreement" with the Seaboard Coastline Railroad Co., CSX's predecessor, for the purpose of establishing a right-of-way for a spur track. Although the plat which was incorporated into this agreement and recorded was intended to depict the location of the spur track, this spur track was adjacent to the area where Gibbs claims there is an encroachment, suggesting that the railroad visited the disputed area in 1977 and found no encroachment upon its right-of-way.

The only documentary evidence of the railroad right-of-way and the encroachment of the building upon it is reflected by those plats described above which depict a right-of-way line. These plats were all prepared by the surveying firm, Gooch & Associates, or by its predecessors. Mr. Gooch testified that there was no documentary or record evidence in his firm's files that form...