Laba v. Carey
277 N.E.2d 641, 29 N.Y.2d 302, 327 N.Y.S.2d 613 (1971)
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Rule of Law:
A contract clause requiring a seller to provide title that a reputable company will insure is not breached when the title insurer's exceptions from coverage are for the same encumbrances that the purchaser expressly agreed to take the property 'subject to' in the contract.
Facts:
- On February 27, 1970, purchasers entered into a written contract with a seller for a parcel of real property, making a down payment of $5,700.
- The contract required the seller to provide a title that a reputable title company would approve and insure.
- The contract also stipulated that the sale was 'subject to' any recorded covenants, restrictions, utility agreements, and easements, provided they were not currently violated.
- The purchasers hired a title company which discovered a recorded telephone easement and a 'Waiver of Legal Grades' restrictive covenant.
- The covenant, recorded in 1967, allowed the property's sidewalk to exist below the official 'legal grade' but obligated the owner and their successors to raise it if ever directed by the Commissioner of Highways.
- The title company agreed to insure the title but stated it would 'except' the telephone easement and the 'Waiver of Legal Grades' covenant from coverage, confirming neither was currently violated.
- At the scheduled closing, the purchasers rejected the seller's deed, claiming the title was not insurable due to the title company's exceptions for the easement and covenant.
Procedural Posture:
- The purchasers (respondents) sued the seller (appellant) in the trial court (Special Term) for the return of their deposit and other costs.
- The purchasers moved for summary judgment, and the seller cross-moved for summary judgment to dismiss the complaint.
- Special Term denied the purchasers' motion, granted the seller's motion, and dismissed the complaint.
- The purchasers, as appellants, appealed to the intermediate appellate court (the Appellate Division).
- The Appellate Division reversed the trial court's order, finding in favor of the purchasers.
- The seller, as appellant, then appealed to the Court of Appeals of New York, the state's highest court.
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Issue:
Does a seller breach a real estate contract requiring the delivery of an insurable title when the title insurance company excepts from coverage specific, unviolated easements and restrictive covenants that the purchaser expressly agreed to take title 'subject to' in the same contract?
Opinions:
Majority - Scileppi, J.
No. A seller does not breach a contract requiring insurable title under these circumstances because the 'subject to' and 'insurance' clauses must be read together to ascertain the parties' intent. The general rule requiring unequivocal title insurance is tempered by the specific terms of the contract. Here, the purchasers expressly agreed to accept title subject to recorded easements and restrictive covenants. The title company's exceptions from coverage—the telephone easement and the 'Waiver of Legal Grades' covenant—were the very matters specifically contemplated by the contract's 'subject to' clause. To hold that the seller breached would render the 'subject to' clause meaningless and allow a purchaser to escape a contract based on conditions they had already accepted. The seller tendered the precise kind of title that the purchasers had bargained for, and the title insurer agreed to insure it in strict conformity with that bargain.
Analysis:
This decision clarifies the interpretation of standard real estate contracts by holding that 'subject to' clauses and 'insurable title' clauses must be read in conjunction. It establishes that a purchaser cannot use a title insurance policy's standard exceptions as a loophole to void a contract if those exceptions directly correspond to encumbrances the purchaser already agreed to accept. The ruling prevents buyers from leveraging expected and accepted title conditions to escape their contractual obligations, thereby promoting stability and predictability in real estate transactions. It reinforces the core principle of contract construction that courts should give effect to all provisions of an agreement and honor the evidenced intent of the parties.
