Good title: Overview, definition, and example
What is good title?
Good title refers to the legal ownership of property or assets that is free from disputes, liens, or encumbrances. When a party represents that they have "good title," it means they have the right to sell, transfer, or use the property without any legal challenges from third parties. This concept is commonly addressed in contracts, especially in transactions involving real estate, goods, or intellectual property.
For example, in a real estate sale, the seller must prove they have a good title to the property before transferring ownership to the buyer.
Why is good title important?
Good title is important because it ensures that the party receiving the property or asset is protected from future claims or disputes. For SMBs, confirming good title is critical to avoid legal issues, financial loss, or disruptions to business operations.
Including a good title representation in contracts provides clarity, reduces risks, and establishes trust between parties by ensuring the asset or property is free from legal complications.
Understanding good title through an example
Imagine an SMB purchases equipment from a vendor. The purchase agreement includes a representation that the vendor has good title to the equipment, meaning it is free from liens or claims by other parties. If the vendor fails to provide good title and the equipment is repossessed by a creditor, the SMB could pursue remedies under the agreement.
In another scenario, a business acquires a patent as part of a merger. The seller must represent that they have good title to the patent and that it is not subject to third-party claims. This protects the buyer from legal challenges that could undermine the value of the acquisition.
An example of a good title clause
Here’s how a good title clause might appear in a contract:
“The Seller represents and warrants that it has good and marketable title to the Assets being sold under this Agreement, free and clear of all liens, encumbrances, claims, or interests. The Seller further agrees to defend the Buyer against any third-party claims asserting ownership of the Assets.”
Conclusion
Good title ensures that assets or property being transferred are free from legal disputes, providing protection and peace of mind for the buyer. For SMBs, verifying good title is essential in transactions involving significant assets to avoid unexpected liabilities or claims. Including a good title clause in agreements protects both parties and ensures a smooth and secure transfer of ownership.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.