## Facts

- Sellers agreed to sell Buyers a residence in a subdivision; Buyers paid $1,000 in earnest money.
- The contract required Sellers to provide an abstract disclosing marketable title and contemplated a survey.
- Subdivision restrictions included side-yard setback requirements; the re-platted subdivision incorporated the Town of New Haven’s zoning setback (8.5 feet).
- A survey showed the house was about 8.4 feet from the side line, violating the zoning setback by approximately 0.1 feet, and also encroaching into the subdivision setback area by about one and one-sixth feet.
- The restrictive covenants authorized any lot owner to sue at law or in equity to enforce violations.
- Buyers requested that Sellers obtain waivers/releases from neighbors to eliminate enforcement risk; Sellers refused.
- With limitations periods unexpired, Buyers refused to close, asserting Sellers could not tender marketable title.
- Sellers sued for Buyers’ failure to complete the purchase; Buyers counterclaimed for damages based on failure to tender marketable title.
- After Sellers rested at trial, the court granted Buyers’ Trial Rule 50 motion against Sellers’ complaint and also entered judgment against Buyers on their counterclaim without hearing Buyers’ evidence.

## Issues

1. Whether known, slight violations of setback requirements that are enforceable by neighboring owners render title unmarketable as a matter of law.
2. Whether the trial court could enter judgment on the evidence against Buyers on their counterclaim before Buyers presented evidence.

## Decision

- The court affirmed judgment on the evidence for Buyers on Sellers’ complaint.
- The court held the setback violations, combined with explicit private enforcement rights and an unexpired limitations period, created a reasonable probability of litigation and therefore unmarketable title.
- The court reversed the judgment against Buyers on their counterclaim and remanded.
- The court held it was premature under Trial Rule 50 to dispose of the counterclaim at the close of Sellers’ evidence because Buyers had not been fully heard.

## Legal Principles

- Marketable title is title free from reasonable doubt—one a prudent purchaser, advised of the facts and legal consequences, would accept.
- A known violation of restrictive covenants can defeat marketability when it exposes the purchaser to a realistic threat of enforcement litigation, even if the physical encroachment is small.
- A purchaser is not required to accept title subject to an existing covenant violation and wait for the statute of limitations to expire.
- Under Indiana Trial Rule 50, judgment on the evidence may be entered only after the party against whom judgment is entered has been fully heard on the issue; disposing of an independent counterclaim before the counterclaimant presents evidence is error.

## Conclusion

The court held that existing setback violations enforceable by neighboring owners rendered the sellers’ title unmarketable, justifying the buyers’ refusal to close, but ordered further proceedings on the buyers’ counterclaim because Trial Rule 50 did not permit judgment against them before they presented their evidence.


Staley v. Stephens, 404 N.E.2d 633 (Ind. Ct. App. 1980)