Laba v. Carey

• Decision Date: 24 November 1971
• Citation: 277 N.E.2d 641,327 N.Y.S.2d 613,29 N.Y.2d 302
• Parties: , 277 N.E.2d 641 Ely LABA et al., Respondents, v. Richard CAREY, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 613

327 N.Y.S.2d 613

29 N.Y.2d 302, 277 N.E.2d 641

Ely LABA et al., Respondents, v. Richard CAREY, Appellant.

Court of Appeals of New York.

Nov. 24, 1971.

Thomas R. Newman, Joseph A. Fiore, Jamaica, and Benjamin H. Siff, New York City, for appellant.

Harold W. Grubart, New York City, for respondents.

SCILEPPI, Judge.

On February 27, 1970, after three weeks of negotiations, respondents, as purchasers, and appellant, as seller, entered into a written agreement for the purchase and sale of a parcel of real property known as 40--51 61st Street, Woodside, New York. In accordance with the terms of the contract, respondents made a payment of $5,700 to the appellant on account of the purchase price. This sum, plus the net costs of title examination and survey, was made a lien on the property and was to be refunded to respondents in the event that appellant failed to perform. In the litigation before us, respondents have sought the recovery of same and have made a claim for counsel fees.

The contract for the sale of the property was prepared on a New York Board of Title Underwriters form and provided that the seller shall give and the purchaser shall accept a title such as any reputable title company would approve and insure. Title was to be conveyed by a bargain and sale deed free of all encumbrances, except those noted in the contract and free of all 'notes or notices of violations of law or municipal ordinances, orders or requirements noted in or issued by the Departments of Housing and Buildings, Fire, Labor, Health, or other State or Municipal Department having jurisdiction against or affecting the premises at the date hereof'. Additionally, the sale and conveyance was made subject to two tenancies and appellant represented that he would serve a 30-day notice to terminate one of them. The contract expressly provided, in relevant part, that the sale and conveyance was subject to.

'4. covenants, restrictions, utility agreement and easement of record, if any, nor in force, provided same are not now violated.

'5. Any state of facts an accurate survey may show, provided same does not render title unmarketable.'

After the execution of the contract, respondents retained the Inter-County Title Guaranty and Mortgage Company, a reputable insurance company, to search and insure title. During the course of the search, the title company found the existence of a recorded telephone easement and a 'Waiver of Legal Grades' restrictive covenant, made between the City of New York and appellant's predecessor in title in 1967, when the latter sought permission to install 25.02 feet of sidewalk in front of the property. It appears that the then owner wished to construct a sidewalk on a level with the sidewalks on either side of the property. This level was approximately one foot below the 'legal grade' for these properties and construction of the sidewalk below 'legal grade' was necessary to prevent the hazardous condition that would result if the sidewalk in front of the subject property was placed one foot higher than surrounding property. The city granted permission and a certificate of occupancy in exchange for the promise of the then owner, his successors and assigns, to install a sidewalk in accordance with the legal grade 'at any time hereafter as the Commissioner of Highways may direct'. As a result of this search, the title company reported that appellant had a good and marketable title which it would approve and insure, but excepted the telephone easement and 'Waiver of Legal Grades' covenant from coverage. Subsequently, the title company reported that there had been no violation of the terms of either the easement or the restrictive covenant.

Investigation also revealed a survey of the property which was made in 1967 indicating the grades an elevations. This survey was filed by the builder's architect with the Department of Buildings of the City of New York and had been approved by that department. The survey showed the 25.02 feet of sidewalk at a grade of 55.72 feet while the 'legal grade' ranged from 57.13 to 57.62 feet. The elevation of the building is 57.65 feet while that of the yard is 55.7 feet.

In a letter dated March 17, 1970 respondents' attorney forwarded the tax and exception sheets issued by the title company to appellant's counsel and advised him that respondents were 'ready to close provided the tenant has removed from the premises.' Appellant's attorney responded that the contract provided that the appellant was not obligated to remove the tenant; appellant's only responsibility was to serve a 30-day notice of termination and this had been done. At no time during this exchange did respondents question either appellant's title or the exceptions noted by the insurance company.

At the time set for the closing appellant tendered a deed which was rejected by respondents on the ground that appellant was unable to deliver a good, marketable and insurable title. This contention was predicated upon the survey and exceptions noted above.

As a result of this impasse, respondents have sought redress in the courts for the return of their deposit and reimbursement for the costs of title examination and counsel fees. A motion for summary judgment and a cross motion for summary judgment dismissing the complaint were made by respondents and appellant, respectively. Special Term denied respondents' motion, granted appellant's motion, and dismissed the complaint. If found that, by reading the 'subject to' and 'insurance' clauses together, appellant had tendered an insurable title. With regard to respondents' claim that title was unmarketable Special Term concluded that the difference between the legal and existing grades of the sidewalk was a matter which related to abutting property and had no effect on title to the property which was the subject matter of the contract. The court also found that marketability was not impaired by the grade of the building (it was above the legal grade) or that of the yard, since no law, ordinance or regulation was violated thereby. (There were no violations filed against the property.)

On appeal, the Appellate Division reversed, 36 A.D.2d 823, 321 N.Y.S.2d 159, with one Justice dissenting on the opinion at Special Term. The court found that respondents were entitled to a return of their down payment and $326.20 for title insurance fees, but dismissed the claim for counsel fees because the contract had limited appellant's liability to the above items. Although it was the view of the majority below that the state of facts in the survey and the commissioner's authority to require the raising of the sidewalk in the future constituted an encumbrance, the court considered the issue of marketability immaterial to its disposition of the case. Instead, the reversal was predicated on the title company's failure to insure title unconditionally and without exception. It was on this basis that appellant was deemed to have breached the contract. The conclusion was reached even though the court stated, in apparent agreement with Special Term, that the 'subject to' and 'insurance' clauses had to be read together and that there had been no violation of the restrictive covenant.

We do not agree with the majority in the Appellate Division. The evidentiary showing made by the parties clearly establishes that appellant did all that was required of him by the terms of the contract. Consequently, we reverse the order appealed from and reinstate the determination of Special Term dismissing the complaint.

The contract of sale provided that appellant was required to deliver a title that a reputable insurance company would approve and insure. Respondents argue, and the Appellate Division has concluded that when a seller so contracts, he breaches his contract when the title company refuses to insure title unconditionally and without exception. This is, of course, the usual construction given to clauses of this nature (see e.g., Gilchrest-Great Neck v. Byer, 11 N.Y.2d 911, 228 N.Y.S.2d 669, 183 N.E.2d 75, affg. 13 A.D.2d 1027, 218 N.Y.S.2d 1003; Gilchest House, Inc., v. Guaranteed Tit. & Mtge. Co., 302 N.Y. 852, 100 N.E.2d 46, affg. 277 App.Div. 788, 97 N.Y.S.2d 226; Friedman v. Handelman, 300 N.Y. 188, 90 N.E.2d 31; New York Investors v. Manhattan Beach Bathing Parks Corp., 256 N.Y. 162, 175 N.E. 6; Flanagan v. Fox, 144 N.Y. 706, 39 N.E 857, affg. on opn. at 6 Misc. 132, 26 N.Y.S. 48). The rule is not, however, absolute, but rather is one to be tempered by the exigencies of the particular contract. Thus, it is said that the title company's approval must be unequivocal unless the exceptions are those contemplated by the contract (2 Harvey's Law of Real Property and Title Closing, § 469.23, p. 778; Kopp v. Barnes, 10 A.D.2d 532, 534--535, 204 N.Y.S.2d 860, 862--863). The contract before us addressed itself to the existence of easements and restrictive covenants and specifically provided that the conveyance was to be subject to these matters of record. The title company, disclosing the existence of a telephone easement and 'Waiver of Legal Grades' restrictive covenant, excluded these items from coverage, except insofar as to say that they had not been violated. In so insuring, it was assuming responsibility for no less than that which respondents had expressly agreed to accept. The exceptions were matters specifically contemplated by the contract and, since there is no indication in the record that the parties intended anything other than the interlocking of the 'subject to' and 'insurance' clauses, it is our view that they must be read together to determine the scope of the seller's obligation.

Our conclusion is nothing more than an application of the 'rule of construction that a court should not 'adopt an interpretation' which will operate to leave a 'provision of a contract * * * without force and effect' (Muzak Corp. v. Hotel Taft Corp., 1 N.Y.2d 42, 46, 150 N.Y.S.2d 171; ...