In Re Ilana Realty, Inc.
| Decision Date | 15 March 1993 |
| Docket Number | No. 92 Civ. 6105 (GLG),No. 91 B 21407,Adv. No. 91 ADV 6200A,92 Civ. 6106 (GLG).,91 B 21407,92 Civ. 6105 (GLG) |
| Citation | 154 BR 21 |
| Parties | In re ILANA REALTY, INC., Debtor. SHORT CLOVE ASSOCIATES, INC., Appellant, v. ILANA REALTY, INC., et al., Appellees. |
| Court | U.S. District Court — Southern District of New York |
McCarthy, Fingar, Donovan, Drazen & Smith, White Plains, NY (William F. Macreery, Robert M. Redis, Marianne M. Acito, of counsel), for plaintiff Short Clove Associates.
Gerarld Zisholtz, Mineola, NY, Jeffrey L. Sapir. White Plains, NY, for defendant Ilana Realty.
McCullough, Goldberger & Staudt, White Plains, NY, for defendant McCullough, et al.
This bankruptcy appeal stems from a real estate transaction in which the appellant Short Clove Associates, Inc. sought to purchase from appellee Ilana Realty, Inc. a property located in Haverstraw, New York. The land to be sold included on it several buildings and improvements. The purchase price was $2.5 million. Short Clove, the buyer, paid into escrow a $125,000 deposit. The closing date was set for 60 days after the contract of sale was executed. After several delays, Ilana made time of the essence and a closing date was set for May 15, 1990.
At the closing, Ilana demanded the certified check for the balance due; Short Clove's title company advised the parties that the exceptions identified in its report had not been removed. The closing of the deal did not occur. Shortly after, Short Clove maintained that Ilana had breached its contractual obligations and demanded return of its downpayment.
After its demand was refused, Short Clove brought suit against Ilana in New York State Supreme Court to recover its downpayment and the interest earned. Before trial, Ilana filed in bankruptcy under Chapter 11. Short Clove commenced an adversary proceeding against Ilana and the escrow agent holding its deposit seeking a declaratory judgment and recovery of its downpayment based upon Ilana's alleged breach of the contract of sale. Ilana counterclaimed for damages alleging that Short Clove had breached the contract by refusing to close title.
A trial was held before the Bankruptcy Court, Hon. Judge Schwartzberg presiding. On March 24, 1992, following the trial's conclusion, the Bankruptcy Court rendered a decision from the bench in favor of Ilana, holding that the Seller had tendered marketable title and was entitled to damages for Short Clove's breach of contract.
On April 6, 1992, the Bankruptcy Court denied Short Clove's motion to amend its decision or in the alternative for a new trial. On April 23, 1992, an Order was entered dismissing Short Clove's complaint, directing delivery of the downpayment to Ilana, and entering judgment on Ilana's counterclaims against Short Clove in the amount of $551,000 plus costs. As directed by the Order, a separate judgment was then entered against Short Clove awarding Ilana $551,000 plus costs. Short Clove appealed challenging both the Order and subsequent judgment. On May 18, 1992, the Bankruptcy Court granted a stay pending appeal of the April 23rd Order.
On the present appeals, Short Clove makes several arguments: 1) the Bankruptcy Court erroneously refused to find that Ilana had breached the contract by tendering a title that was neither marketable nor insurable; 2) that the Court also erred in treating marketability and insurability as issues of evidence instead of questions of law; and 3) the Court erred as a matter of law in awarding Ilana both liquidated damages under the contract and additional damages on its counterclaims for breach of contract.
On appeal, Ilana responds that the Bankruptcy Court correctly found that Short Clove had breached the contract, and failed to establish a prima facie case of entitlement to return of the deposit by failing to prove that it was ready, willing, and able to complete its purchase by tendering a certified check for the balance owed. Short Clove responds that under New York law, where the seller is unable to deliver marketable title, the purchaser need not tender payment. See Greene v. Barrett, Nephews & Co., 238 N.Y. 207, 144 N.E. 503 (1924); Cohen v. Kranz, 12 N.Y.2d 242, 246-27, 238 N.Y.S.2d 928, 189 N.E.2d 473 (1963).
As all sides recognized during the adversarial proceeding below, the crux of the case is the marketability of title. If title was marketable, Short Clove breached the contract by failing to tender payment. If title was unmarketable, Ilana failed to abide by its contractual obligation to deliver marketable title. On appeal, appellants raise the issue of insurability as a grounds for reversal. Under New York law, there is a distinction between marketable title and insurable title. Hudson-Port Ewen Associates, L.P. v. Chien Kuo, 165 A.D.2d 301, 566 N.Y.S.2d 774 (3rd Dep't), aff'd, 78 N.Y.2d 944, 573 N.Y.S.2d 637, 578 N.E.2d 435 (1991). During the trial below, appellants repeatedly stated that marketability formed the only issue in the case. The Bankruptcy Court agreed, without objection. Therefore, as a preliminary matter, any arguments on appeal concerning the title's insurability will not be considered since they were not presented to the Bankruptcy Court.1
Thus, the appeal turns on the Bankruptcy Court's finding that marketable title was tendered to Short Clove. Ilana contends that the alleged defects in title which supposedly defeated marketability were all explicitly covered by provisions of the contract of sale. In short, Ilana stresses that the Bankruptcy Court properly concluded that Short Clove, rather than intending to tender full payment, was speculating on the real estate deal that fell through and now raises a marketability smokescreen to avoid the consequences of its default.
Short Clove responds that even if a small portion of the property is unmarketable, the purchaser is entitled to a return of its downpayment. See Rosenberg v. Centre Davis Corp., 209 N.Y.S.2d 19 (1960), aff'd, 15 A.D.2d 506, 222 N.Y.S.2d 391 (2d Dep't 1961). Under this approach, Short Clove must show that at least some part of the property is unmarketable, meaning that the intended and announced use of that portion was undermined by defects in title.
At the conclusion of the trial, the Bankruptcy Court held:
The sole and basic issue here is whether or not this was marketable title on May 15, 1990. The only evidence in this case which is unrefuted is by Mr. Krieger that this was marketable title . . . basically the only evidence of marketability.
Without any identifiable plan to development of the property, it seems impossible to hold that any of the encroachments render anything unmarketable by definition.
At the outset, we note that a Bankruptcy Court's judgment shall not be set aside unless found to be clearly erroneous. In particular, Bankruptcy Rule 8013 states:
On an appeal the district court . . . may affirm, modify or reverse a bankruptcy judge\'s judgment, order or decree or remand with instructions for further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witness.
Thus, even if we would have reached a contrary factual conclusion, we will not reverse the Bankruptcy Court unless its factual findings are "clearly erroneous." See In re Vienna Park Properties, 125 B.R. 84 (S.D.N.Y.1991). A finding of fact is clearly erroneous when, after reviewing the evidentiary record, we are "left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985). We review its conclusions of law "de novo." See In re G.S.F. Corp., 938 F.2d 1467, 1474 (1st Cir.1988); In re Chateaugay Corp., 104 B.R. 637 (S.D.N.Y.1989).
Short Clove's primary argument on appeal is that the existence of various easements, encroachments, etc. rendered the title unmarketable as a matter of law. And since Ilana did not tender a marketable title, it breached the contract.
"The test of whether a title is marketable is whether the purchaser can peacefully enjoy and use the property for his intended and announced purposes." DeJong v. Mandelbaum, 122 A.D.2d 772, 505 N.Y.S.2d 659, 661 (2d Dep't 1986). Put another way, marketability rests on whether there is an objection to title which would interfere with a sale or with the market value of a property. See Regan v. Lanze, 40 N.Y.2d 475, 387 N.Y.S.2d 79, 83, 354 N.E.2d 818, 822 (1976). Marketability does not assure a buyer a title free from every doubt, or even every encroachment. Rather, it shields the buyer from defects in title that are more than simply possible or very remote. Id.
Moreover, easements and encroachments, particularly when they are open and notorious, do not automatically render title unmarketable. Whitman v. Larson, 172 A.D.2d 968, 568 N.Y.S.2d 485 (3rd Dep't 1991). If they are visible, open and notorious, a buyer is presumed to purchase the land subject to them. Id. 568 N.Y.S.2d at 487.
The extent to which the easements and encroachments identified by appellant infringed upon the property's marketability involves a factual assessment of their impact on the planned use of the property coupled with an examination of their express identification in the contract of sale. We might thus call marketability a mixed question of fact and law.
As we highlighted, the Bankruptcy Court held that Ilana tendered marketable title to Short Clove at the May 15, 1990 closing. As an evidentiary matter, the court rested its holding on the fact that nothing in the record disputed the testimony of Ilana's expert witness that despite the enumerated exceptions by the title company, title was marketable.
As a formal matter, the Bankruptcy Court was indeed correct. The only direct evidence in the...
To continue reading
Request your trial