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Violation of city's zoning ordinance renders title to property unmarketable

Holding that the operative facts did not constitute the same transaction for res judicata purposes, the court found that the trial court properly denied defendant-Waterfront's summary disposition motion based on res judicata. The trial court also did not err in concluding that plaintiff's title to the property at issue was unmarketable. However, it erred in ruling that Waterfront breached its obligation to convey marketable title, and in quieting title and amending the deed to include an adjacent parcel (Parcel 7). Waterfront was entitled to summary disposition on plaintiff's quiet title claim and reformation of the deed was improper. The property comprised an inn, referred to as Parcels 1-7. Plaintiff purchased Parcels 1-6. Parcel 7 was specifically excluded. As to Waterfront's res judicata argument, the court noted that the rights and relief asserted in this case as to Waterfront's "alleged failure to convey marketable title to the property arose directly out of the parties' purchase agreement governing the transaction and the resulting Covenant Deed. The rights plaintiff asserted in the earlier action originated from a separate and distinct agreement" as to the proration of taxes and oral agreements about the water bill and gift certificates entered into after the transaction. The court also concluded that the violation of the defendant-city's ZO delineating the property as a PUD constituted an encumbrance rendering plaintiff's title unmarketable. Waterfront's conveyance of less than 100% of the PUD violated the ZO "because the PUD is no longer under single ownership or control" - Waterfront retained ownership and control of Parcel 7 while plaintiff owned and controlled Parcels 1-6. Pursuant to the ZO "Parcel 7 could not be removed from the PUD without an amendment" by the city council. However, "the conveyance of the property itself gave rise to" the ZO violation and encumbered "the title upon the conveyance." The court concluded that "because there was no preexisting violation" of a ZO "before the conveyance and the act or matter that encumbered the title was the conveyance itself," Waterfront could not have breached the deed "warranting that, up to, before or until the conveyance, it had not done, committed, or suffered to be done or committed any act, matter, or thing, whereby the property conveyed shall or may be charged or encumbered in title." Thus, plaintiff could not rely on the deed to remedy its lack of marketable title and could not claim an interest in Parcel 7 to support its quiet title action by alleging a deed breach. Further, mutual mistake did not support reformation of the deed to include Parcel 7 because any mutual mistake related to an extrinsic fact (the ZO's terms). Reversed in part and remanded.


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