Opinion
16365/08.
Decided April 14, 2009.
Raymond A. Bragar, Esq., Bragar Wexler Eagel Squire PC, Attorney for Plaintiffs and additional counterclaim defendants.
Mark D. Marderosian, Esq., Attorney for all Defendants except stakeholder Michael J. O'Rouke for whom there was no appearance.
Plaintiffs 325 Schermerhorn, LLC, 345 Schermerhorn, LLC, 359 Schermerhorn, LLC, and 350 Livingston, LLC (plaintiffs) and the additional counterclaim defendant, North Development Group LLC, d/b/a North Development Corporation (NDG), move for an order, pursuant to CPLR 3212, on the first, second and third causes of action of their complaint or, alternatively, pursuant to CPLR 3211 (a) (1), dismissing all counterclaims asserted against them by defendants Nevins Realty Corp. (the Seller), Armco Development, LLC (Armco), and Raymond McKaba (McKaba and, collectively, defendants). Defendants cross-move for an order, pursuant to CPLR 3025 (b), granting them leave to serve an amended answer containing additional counterclaims.
Unless otherwise indicated, the term "Seller" as used herein includes Armco, the contract assignee for the 345 Schermerhorn property.
BACKGROUND
On June 6, 2008, plaintiffs commenced this action for (a) breach of contracts to recover the deposits of approximately $3.6 million paid by plaintiffs pursuant to various agreements for the purchase of real property and to recover "development costs" of at least $2.7 million as consequential damages, and (b) breach of a personal guarantee by defendant McKaba to repay certain funds withdrawn from deposit escrows maintained by defendant Michael J. O'Rourke (O'Rourke) (Hager Aff., Ex. A, Complaint, ¶ 1). By way of relief, plaintiffs sought: (a) an order directing O'Rourke to turn over certain deposits to the respective plaintiffs (First Cause of Action); (b) a judgment against applicable defendant for the deposits, plus development costs (Second Cause of Action); and (c) a judgment against McKaba on his personal guarantee, plus interest thereon at the rate of 9% per annum accruing since April 10, 2008 (Third Cause of Action) (Complaint, ¶¶ 31-43).
Affidavit of Isaac Hager, the managing agent of each of the four plaintiffs and of the additional counterclaim defendant, sworn to on July 25, 2008 (the Hager Aff.).
Plaintiffs also asserted a fraud claim against McKaba (Fourth Cause of Action) (Complaint, ¶ 44-50). By stipulation dated October 7, 2008, plaintiffs voluntarily withdrew and released with prejudice all fraud and other misrepresentation claims against the Seller concerning the transactions at issue (Scheduling Stipulation, ¶ 7).
Defendants answered the complaint and asserted counterclaims against plaintiffs and its affiliate, non-party NDG, for specific performance (Hager Aff, Ex. B, Answer, ¶¶ 18-37). Plaintiffs and NDG have not answered the counterclaims.
Non-movant defendant O'Rourke separately answered the complaint, asserting that he merely acts as a stakeholder in this litigation (Hager Aff., Ex. B).
1.The Uniform Terms
Each of plaintiffs, acting either individually or acting through its affiliate NDG, agreed to purchase from the Seller the following four contiguous parcels of real estate, known as 350 Livingston Street, 359 Schermerhorn Street, 325 Schermerhorn Street, and 345 Schermerhorn Street, located in Brooklyn.
Although the parties signed separate contracts for each individual property, the following relevant provisions are identical (or nearly identical) in each of these contracts:
The contracts and their riders are annexed to the Hager Affidavit as Exhibit G (350 Livingston Street), Exhibit F (359 Schermerhorn Street), Exhibit C (325 Schermerhorn Street), and Exhibit D (345 Schermerhorn Street).
(a) Paragraphs 13 and 6, which require that the title to be conveyed shall be free of all encumbrances except as otherwise stated in the contract, read:
"The deed shall be the usual Bargain and Sale Deed with Covenant[s] against Grantor's Act[s] deed in proper statutory short form for record and shall be duly executed and acknowledged so as to convey to the purchaser the fee simple of the said premises, free of all encumbrances, except as herein stated . . ." (Contract, ¶ 13 [emphasis added]).
"Said premises are sold and are to be conveyed subject to:
a.Zoning regulations and ordinances of the city, town or village in which the premises lie which are not violated by existing structures.
b.Consents by the seller or any former owner of premises for the erection of any structure or structures on, under or above any street or streets on which said premises may abut.
c.Minor encroachments of stoops, areas, cellar steps, trim and cornices, if any, upon any street or highway (Contract, ¶ 6).
In the case of the 350 Livingston property which was tenant occupied, also subject to: "Leases set forth on Exhibit A' annexed hereto." The contract for the 345 Schermerhorn property has an additional sentence in ¶ 6 (b) relating to the existing mortgages.
(b) A rider to the contract requires that the closing for all properties must occur simultaneously, as follows:
"It is understood and agreed that the closing of title with respect to (i) 325 Schermerhorn, (ii) 345 Schermerhorn, (iii) 359 Schermerhorn, and (iv) 350 Livingston shall take place simultaneously and that a default under the contract of sale for any of the said four (4) properties shall be deemed a default under the contracts for each of said four (4) properties. . ." (Dec. 4, 2007 Rider, ¶ 2).
(c) Another rider to the contract permits the Seller to retain the down payments in the following circumstances:
"In the event the Premises herein do not close on or by the 1st day of October, 2006, due to Purchaser's default, then these Contracts shall be terminated and shall be of no further force and effect and the Seller shall retain the earnest monies as liquidated damages because of the difficulty in determining the actual damages to the Seller" (Nov. 10, 2005 rider).
The provision quoted in the text applies to the 350 Livingston, 359 Schermerhorn, and 325 Schermerhorn properties. With respect to the 345 Schermerhorn property, the governing agreement provides:
"In the event Assignee [345 Schermerhorn, LLC] shall default under this Agreement or the Contract, Escrow Agent shall, after prior written notice to Assignee and failure of Assignee to cure same within five (4) business days after receipt by Assignee of said notice[,] be authorized to turn over to Assignor the Deposit and thereupon this Agreement shall cease to have any force and effect and neither party to this Agreement shall have any further rights against the other hereunder[,] it being understood that upon Assignee's default hereunder, the Deposit shall be retained by Assignor as liquidated damages, actual damages being difficult, if not impossible, to ascertain" (Undated Feb. 2006 contract, ¶ 8).
(d) Paragraph 22 is the limitation of the purchaser's damages under the contract and reads:
"In the event that the seller is unable after good faith efforts to convey title in accordance with the terms of this contract, the sole liability of the seller will be to refund to the purchaser the amount paid on account of the purchase price and to pay the net cost of examining the title, which cost is not to exceed the charges fixed by the New York Board of Title Underwriters, and the net cost of any survey made in connection therewith incurred by the purchaser, and upon such refund and payment being made this cont[r]act shall be considered canceled" (Contract, ¶ 22).
(e) Paragraph 25 is the merger provision, reading:
"It is understood and agreed that all understandings and agreements heretofore had between the parties hereto are merged in this contract, which alone fully and completely expresses their agreement, and that the same is entered into after full investigation, neither party relying upon any statement or representation, not embodied in this contract, made by the other. . ." (Contract, ¶ 25).
The merger clause with respect to the 345 Schermerhorn property is substantially similar:
"All prior undestanding[s] and agreements between the parties are merged into this Agreement which alone fully and completely expresses the agreement between them, and which is entered into after full investigation, neither party relying upon any statement or representation made by the other not embodied herein in reasonable construction in accordance with the intention of the parties hereto, and without regard to or aid of canons requiring construction against Assignor" (Undated Feb. 2006 contract, ¶ 14).
The original contract closing date was set for April 1, 2006. Thereafter, the closing date was extended to March 31, 2008, and the time was set as being of the essence as to plaintiffs. By letter dated February 28, 2008, the Seller notified plaintiffs that with respect to all four properties:
"Closing is fixed for March 31, 2008 with TIME OF THE ESSENCE to Close the transaction by April 10, 2008. Please be further advised that Nevins Realty Corp. will be ready, willing and able to Close and tender the Deed and complete the transactions on April 10, 2008 at 10:00 A.M. at the offices of Nevins Realty Corp . . . (Hager Aff., Ex. H).
By letter dated April 8, 2008, plaintiffs notified the Seller that, in their view, the Seller was unable to dispose of the title objections and that the Seller would be unable to convey title to the premises in accordance with the terms of the contracts. Plaintiffs requested a return of their down payments in the event the parties were unable to renegotiate the referenced agreements by the April 10, 2008 closing date (Hager Aff., Ex. N). The closing never occurred and plaintiffs were not refunded their down payments.
2.The Specific Terms
a.350 Livingston Street (Block 167, Lot 13)
Plaintiffs contend that on October 6, 2005, plaintiff 350 Livingston, LLC contracted with the Seller to buy a piece of commercial real estate located at 350 Livingston Street in Brooklyn for $26 million (Hager Aff., Ex. G). The original contract included a rider which provided for a due diligence period within which the purchaser could investigate and, if it deemed appropriate, cancel the contract for any reason (¶¶ 3 [a] and [b]). A subsequent contract rider executed on November 10, 2005 eliminated the due diligence period and stated that the applicable plaintiff agreed to take the premises as is' (Hager Aff., Ex. G).
As to each of the four properties, the parties disagree as to whether the applicable plaintiff or its affiliate NDG was the named purchaser of the applicable property. NDG's name is crossed out in each contract and replaced with the name of the applicable plaintiff without changing the name of the individual signatory.
Attached to the contract of sale was a survey of October 6, 1965, indicating that the property was improved by a three-story building and noting that the footings of the building rested on the subway roof.
A certificate of occupancy dated October 4, 1982, attached to the contract of sale, indicates that the property is improved by a six-story building.
The contract requires that the purchaser "shall order a full title insurance policy and attachments promptly after execution of this contract" (Ex G, Contract, at 1). While the record does not reflect when the purchaser ordered a title search, it appears that the purchaser received from New York Land Services, acting on behalf of Commonwealth Land Title Insurance Company (the Title Company) a title search report some time prior to November 15, 2006 and an updated title search
report of January 17, 2008 (Hager Aff., Exs. I and P).
Exhibit P to the Hager Affidavit is annexed as an exhibit to the Scheduling Stipulation of October 7, 2008.
The pre-November 15, 2006 title search report states in Schedule B thereof that the Seller has a good and marketable title to the premises, subject to, as relevant herein, an exception for the easement and right of way set forth in the Indenture of June 30, 1961 between the City of New York (the City) and the Seller (Hager Aff., Ex. J). Paragraph 7 of that Indenture indicates that in 1961 the Seller acquired from the City a portion of the property, now part of 350 Livingston Street, subject to "a permanent and perpetual easement and right of way for the construction, maintenance and operation of a subway and rapid transit railroad and its appurtenances in, through and under said premises as the same are now constructed, maintained and operated or may hereafter be constructed, maintained and operated within the easement area" (Hager Aff., Ex. J). Thereafter, the Title Company issued an updated certificate and report of title of January 17, 2008 in which it similarly excepted the foregoing item (Hager Aff., Ex. I).
The other subway or railroad-related exceptions are as follows:
a.Surface Railroad Consent, set forth in the Indenture of November 11, 1912, which permitted The Manhattan Bridge Three Cent Line to construct, maintain, and operate a single or double track street surface railroad;
b.Railroad Consent, recorded in Liber 3399, cp 297, which is not attached to the title search report and is not otherwise in evidence; and
c.Railroad Permit Agreement from The New York City Transit Authority to Nevins dated July 2, 1965, which allowed the Seller to cross vehicles over certain subway ventilator chambers located in the sidewalk in front of the premises.
By letters dated November 15, 2006 and March 20, 2008, the purchaser notified the Seller that the foregoing easement and other "exceptions" shown on Schedule B to the title report "constitute Purchaser's objections to the state of title to the Premises unless such objections are disposed of with the Title Company and/or with Purchaser as indicated on the enclosed copy of Schedule B" (Hager Aff., Ex. P). The record is silent as to whether the Title Company was willing to insure title in accordance with the notation stated above.
b.359 Schermerhorn Street (Block 167, Lots 27, 28, and 36)
As to this property, plaintiffs contend that on October 6, 2005, plaintiff 359 Schermerhorn, LLC contracted with the Seller to buy a piece of commercial real estate located at 359 Schermerhorn Street in Brooklyn for $30.5 million (Hager Aff., Ex. F). The original contract did not include a due diligence period. A subsequent contract rider executed by the respective parties on November 10 and 15, 2005 provided that the applicable plaintiff waived due diligence and agreed to take the premises as is' (Hager Aff., Ex. F).
The contract requires that the purchaser "shall order a full title insurance policy and attachments promptly after execution of this contract" (Ex F, Contract, at 1). While the record does
not reflect when the purchaser ordered a title search, the record indicates that the purchaser received from the Title Company a title search report of December 24, 2005, as amended on March 2, 2006.
The amended March 2, 2006 title search report states in Schedule B thereof that the Seller has a good and marketable title to the premises, subject to, as relevant herein, an exception for a transit easement. The title report disclosed that pursuant to the Indenture of July 6, 1966, the Seller's predecessor in title (R.L.Y. Corp.) acquired the property from the City, subject to the transit easements set forth on the Map of the New York City Transit Authority of March 31, 1951, File No. 64, Drawing No. 265 (collectively, the Transit Easement). The notations to the map evidencing the Transit Easement indicate that the subway roof underneath (or in the vicinity of) the property can withstand a load of only a 15-story loft building on the property (Hager Aff, Ex. L). According to plaintiffs, they intended to build a 68-story building on the four properties to be acquired from the Seller, including the subject property (Hager Reply Aff., Exs. D and E), although none of the contracts of sale reflected the intended use for which the properties were to be purchased.
Again, as was the case with the 350 Livingston property, by letters dated November 15, 2006 and March 20, 2008, the purchaser notified the Seller that the Transit Easement and other "Exceptions" shown on Schedule B to the title report "constitute Purchaser's objections to the state of title to the Premises unless such objections are disposed of with the Title Company and/or with Purchaser as indicated on the enclosed copy of Schedule B." Likewise, the record is silent as to whether the Title Company was willing to insure title in accordance with the notation stated above.
c.325 Schermerhorn Street (Block 167, Lot 50)
Plaintiffs contend that on October 6, 2005, plaintiff 325 Schermerhorn, LLC contracted with the Seller to buy a piece of commercial real estate located at 325 Schermerhorn Street in Brooklyn for $3.5 million (Hager Aff., Ex. C). The original contract included a rider which provided for a due diligence period within which the purchaser could investigate and, if it deemed appropriate, cancel the contract for any reason (¶¶ 3 [a] and [b]). A subsequent contract rider executed on November 10, 2005 stated that the applicable plaintiff waived due diligence and agreed to take the premises as is' (Hager Aff., Ex. C).
As was the case with the two properties discussed above, the contract requires that the purchaser "shall order a full title insurance policy and attachments promptly after execution of this contract" (Hager Aff., Ex C, Contract, at 1). While the record does not reflect when the purchaser ordered a title search, the amended March 2, 2006 title search report fails to mention any subway or transit-related easements in Schedule B thereof (Scheduling Stipulation, Ex. A). Plaintiffs state that there were only "minor title problems" regarding this property, thereby suggesting that no title problems for this property would have otherwise precluded closing (Hager Aff., at 11, n. 2), although they did issue November 15, 2006 and March 20, 2008 letters to the Seller demanding that exceptions to title to the 325 Schermerhorn property be removed (Scheduling Stipulation, Ex. A).
Similar to the above-referenced properties, the closing date was extended and finally set for April 10, 2008, with the time being of the essence as to the purchaser. The basis for plaintiffs' refusal to close as to this property was the simultaneous closing clause.
d.345 Schermerhorn Street (Block 167, Lot 42)
The fourth and final property was to be acquired by plaintiff 345 Schermerhorn, LLC from the Seller's assignee, Armco Development LLC, who was to acquire it from non-party Health Insurance Plan of Greater New York for $16 million (Hager Aff., Ex. D). By letter dated March 20,
2008, 345 Schermerhorn, LLC exercised its option to acquire this property (Hager Aff., Ex. E).
Plaintiffs perceived no title problems with this property (Hager Aff., at 11, n. 2), but refused to close on the 350 Livingston and 359 Schermerhorn properties because of the easements. Plaintiffs also refused to close on the other two properties in reliance on the simultaneous closing clause.
The Parties' Contentions 1.Plaintiffs' Motion for Summary Judgment
or, Alternatively, to Dismiss the Counterclaims a.Plaintiffs
Plaintiffs assert that (a) the Seller was obligated to convey to them unencumbered titles, subject to minor exceptions; (b) the easements with respect to the 350 Livingston and 359 Schermerhorn properties constituted encumbrances which rendered it impossible to fulfill plaintiffs' original development plans to erect a high-rise building on the parcel; (c) the Seller failed to clear the encumbrances on the titles to these two properties by the closing date; (d) by virtue of the simultaneous closing clause, plaintiffs were not required to purchase any of the four properties, including the 325 Schermerhorn and the 345 Schermerhorn properties which were unencumbered by the easements; and (e) despite plaintiffs' demand, the Seller (or its counsel) refused to return the down payments. Accordingly, plaintiffs demand (a) a judgment directing O'Rourke, as the Seller's counsel, to return the down payments held by him; (b) requiring McKaba, the Seller's principal, to repay those portions of the down payments which were disbursed out of the escrows prior to closing; (c) a judgment against the Seller in the total amount of the down payments; (d) the accrued interest on the down payments; and (e) consequential damages.
Plaintiffs further argue that the Seller's counterclaim for specific performance must be dismissed because the contracts of sale limit the Seller's remedy for their default to the retention of the down payments. Thus, even if plaintiffs had breached the contracts, the Seller's exclusive remedy is the retention of the down payments.
b.Additional Counterclaim Defendant
NDG asserts that it is not a proper party to this dispute. According to NDG, the contracts of sale, the riders thereto, and the correspondence regarding the properties make clear that NDG is not a party to any of these transactions.
c.The Seller
The Seller contends that plaintiffs knew of the Transit Easement with respect to 359 Schermerhorn Street before they agreed to purchase this property. According to the Seller, a survey reflecting the Transit Easement was attached to another contract involving 300 Schermerhorn Street (a property which is not a subject of this action), which was in turn cross-referenced on the first page of the contract for the purchase of the 359 Schermerhorn property in the following comment, "See 300 Schermerhorn St." According to the Seller, the court should determine whether plaintiffs (a) agreed to accept or otherwise became estopped to raise any objection to the Transit Easement as a title encumbrance, and (b) breached their contractual obligations by objecting to the Transit Easement after the Seller acquired the 345 Schermerhorn property from a third party in order to be in a position to re-sell it to plaintiffs at closing.
The Seller next contends that its counterclaims against the plaintiffs and NDG should not be dismissed. The Seller draws a distinction between a default, which, according to the Seller, is a narrow concept involving a mere failure by the putative buyer to tender the purchase price on the designated closing date, and a breach, which, according to the Seller, is a much broader concept and includes other acts and omissions that violate the underlying agreement. The Seller argues that the contractual provisions which plaintiffs invoke as a bar to the Seller's specific performance counterclaims relate exclusively to remedies for a default by plaintiffs and they do nothing to limit the Seller's remedies for a breach or any violation of the implied covenant of good faith and fair dealing. The Seller contends that in this declining real estate market, it would be unfair to limit its damages to the retention of the down payments when it spent over 30 months in negotiating the agreements with plaintiffs while paying the carry costs for the properties.
d.Plaintiffs' Reply
Plaintiffs respond that they had no knowledge of the easements affecting the 359 Schermerhorn and the 350 Livingston properties and that, in any event, such knowledge could not eviscerate the warranties of title made by the Seller in the contracts. Plaintiffs further assert that the fact that the Transit Easement appeared in the contract of sale for the 300 Schermerhorn property is irrelevant because such property is not part of this action.
Plaintiffs reiterate their position that (a) there were impermissible title encumbrances on the 350 Livingston and the 359 Schermerhorn properties; (b) plaintiffs informed the Seller of such encumbrances; (c) the Seller failed to cure same prior to the scheduled closing date; and (d) a default by the Seller under one of the four contracts was a default under all four contracts. Thus, plaintiffs argue, they are entitled to a return of their down payments as a matter of law.
e.Additional Counterclaim Defendant's Reply
NDG argues that although it had been initially named in all of the four contracts as the purchaser, its name was substituted for the name of the applicable plaintiff, with the Seller's knowledge. Furthermore, all riders to the contracts were executed in the name of the applicable plaintiff.
2.The Seller's Motion for Leave to Amend Its Answer
to Assert Additional Counterclaims a.The Seller
The Seller contends that it is entitled to assert additional counterclaims against plaintiffs and NDG for its carrying costs of the four properties since October 2005 when the contracts of sale were executed and delivered. The Seller's position is that the contractual limitation of damages in the event of the purchasers' default does not apply to a breach which, it asserts, occurred here.
b.Plaintiffs and Additional Counterclaim Defendant
Plaintiffs state that if their motion is denied in its entirety, they have no objection to the Seller amending its answer. NDG, as the additional counterclaim defendant, however, objects to being served with an amended answer because it was not a party to any of the underlying contracts.
DISCUSSION
To be entitled to summary judgment, the movant must establish its cause of action sufficiently to warrant a court's directing judgment in its favor as a matter of law, tendering sufficient
evidence to demonstrate the absence of any material issues of fact ( see Zuckerman v City of New York, 49 NY2d 557, 562; CPLR 3212 [b]). Where the proponent of the motion makes a prima facie showing of entitlement to summary judgment, the burden shifts to the party opposing the motion to demonstrate by admissible evidence the existence of a factual issue requiring a trial of the action ( see Vermette v Kenworth Truck Co., 68 NY2d 714, 717).
It is incumbent upon a party who opposes a summary judgment motion to "assemble, lay bare, and reveal [its affirmative proofs] in order to establish that the matters set forth in [its answer] are real and capable of being established at a trial" ( Castro v Liberty Bus Co., 79 AD2d 1014, 1014 [2d Dept 1981]). Thus, in order to defeat a prima facie showing of entitlement to relief, the opposing party must lay bare, in evidentiary form, the evidence upon which it relies; bald and broad conclusory assertions are insufficient ( see Zuckerman, 49 NY2d at 562).
The test of marketability of a title is:
"whether there is an objection thereto such as would interfere with a sale or with the market value of the property . . . A marketable title is a title free from reasonable doubt, but not from every doubt . . . [A] purchaser ought not to be compelled to take property, the possession or title of which he may be obliged to defend by litigation. He should have a title that will enable him to hold his land free from probable claim by another, and one which, if he wishes to sell, would be reasonably free from any doubt which would interfere with its market value . . . [M]arketability of title is concerned with impairments on title to a property, i.e., the right to unencumbered ownership and possession. . ."
( Voorheesville Rod Gun Club v E.W. Tompkins Co., 82 NY2d 564, 571 [internal quotation marks and citations omitted]).
An easement is an encumbrance rendering title unmarketable with the same effect as mortgages, leases, and the like ( see Rhodes v Astro-Pac, Inc., 41 NY2d 919, 920). A purchaser need not accept title subject to an encumbrance if the contract specifies conveyance of title free of all encumbrances ( see id. at 920). The rule applies even though there is no showing that the encumbrance actually diminished the current market value of the property ( see id.). Furthermore, "marketability is not determined by title companies, but by the courts, and . . . an easement is an incumbrance which renders title unmarketable" ( Bibber v Weber, 199 Misc 906, 909 [Sup Ct., Queens County 1951], affd 278 App Div 973 [2d Dept 1951]).
In this case, the contracts for the 350 Livingston and 359 Schermerhorn properties specified that each such property shall be conveyed "free of all encumbrances, except as herein stated" (Contract, ¶ 13). The subject contracts contained no exceptions for the subway/transit easements. The only encumbrances excepted in the subject contracts related to: (a) the zoning regulations and ordinances; (b) consents for the erection of any structure on, under, or above the streets abutting the premises; (c) minor encroachments upon any street or highway; and (d) tenant leases in the case of the 350 Livingston property (Contract, ¶ 6). The easements, which were recorded and were intended to run with the land, were not excepted from the applicable contracts. These easements would render the Seller's title unmarketable, as they would inhibit plaintiffs' proposed development of the property as a high-rise hotel/condominium ( see Patten of New York Corp. v Geoffrion, 193 AD2d
1007, 1009 [3d Dept 1993], lv denied 82 NY2d 654).
Since the plaintiffs have established their prima facie entitlement to summary judgment on their complaint by demonstrating that the marketability of title was doubtful, it was incumbent upon the Seller to raise a triable issue of fact that its title was marketable ( see Barrera v Chambers , 38 AD3d 699 , 700 [2d Dept 2007]). The Seller, however, fails to address the marketability of title in its papers. Rather, the Seller argues that the plaintiffs knew, either actually or constructively, that they were buying the two properties "as is" and subject to the easements. Specifically, the Seller asserts that plaintiffs' managing partner, Mr. Hager, actually knew of the 1951 Transit Easement because one of his companies at approximately the same time purchased from the Seller the 300 Schermerhorn property which was subject to the same easement. The Seller also points out that the contract of sale for the 359 Schermerhorn property contained a first-page notation, "see 300 Schermerhorn St."
The court declines the Seller's invitation to examine in detail the 300 Schermerhorn transaction. It is well settled in New York that "the knowledge in the grantee of existing easements does not defeat his right to object to the title except in the case of a public highway and the lawful structures thereon" ( Pryor v City of Buffalo, 197 NY 123, 136 [a right of way for a railroad makes title unmarketable and the buyer's knowledge of the condition is immaterial]; Clark v Riverhead Savings Bank, 260 App Div 1022 [2d Dept 1940], affd 286 NY 588 [an easement for telephone poles and wires was an encumbrance which rendered title unmarketable notwithstanding the purchaser's knowledge]; see also Callanan v Keenan, 224 NY 503, 508 ["it has been settled that in nearly all cases the knowledge by the grantee of existing easements or incumbrances or defects in the title conveyed to him does not defeat his right to recover damages for the breach of covenants contained in the deed. The conspicuous exception is that of an existing public highway"], rearg denied 225 NY 662). As was stated by Judge Cardozo:
"There remains one other question, suggested, not by counsel, but by members of the court. A covenant against incumbrances must be restricted, it is said, to incumbrances unknown to the grantee when accepting the conveyance. Such is not the law as our decisions have declared it ( Callanan v. Keenan, 224 NY 503, 508; Pryor v. City of Buffalo, 197 NY 123, 136; Huyck v. Andrews, 113 NY 81). The value of covenants of title would be seriously impaired if their operation could be limited by notice, actual or constructive, of the presence of a hostile right ( Huyck v. Andrews, supra, at p. 90)."
( City of New York v New York South Brooklyn Ferry Steam Transp. Co., 231 NY 18, 26, rearg denied 231 NY 598).
Thus, even if plaintiffs knew of the Transit Easement based on either their purchase of the 300 Schermerhorn property or based on a cross-reference in the contract for the 359 Schermerhorn property ("see 300 Schermerhorn St."), plaintiffs' knowledge of such easement does not defeat their entitlement to buy the 359 Schermerhorn property free and clear of it in accordance with the contract. "What was intended is conclusively fixed by the contract of sale which undertook to convey a title free and clear of incumbrances . . ." ( Dinnean v Liebler, 8 AD2d 920, 920 [3d Dept 1959], affd 8 NY2d 759). The Seller's allegations as to what was really intended but was unstated or misstated in the contracts is inadmissible to add or vary their terms ( see W.W.W. Assocs., Inc. v Giancontieri, 77 NY2d 157, 162).
In any event, it appears that the Transit Easement with respect to the 359 Schermerhorn property is not the only encumbrance that precluded the closing in this case. Plaintiffs also objected to an easement which encumbered the 350 Livingston property ( see ¶ 7 of the Indenture of June 30, 1961 between the City and the Seller, annexed to the Hager Aff. as Ex. J). Thus, plaintiffs could not be required to acquire the 350 Livingston property which was subject to an easement.
The "as is" clause does not compel a different result. The more general provisions of the "as is" clause of the contract riders appear to be in conflict with paragraph 13, which requires the Seller to convey the premises "free of all encumbrances." "Where possible, a contract should be interpreted to avoid inconsistencies and to give meaning to all of its provisions, giving a practical and reasonable interpretation to the language employed and the parties' reasonable expectations with respect thereto. Therefore, a court should not adopt an interpretation which would leave any provision without force and effect"( Zullo v Varley , 57 AD3d 536 , 537 [2d Dept 2008] [internal citations omitted]). Applying the foregoing principles, the court finds the more specific provision of paragraph 13 to be controlling ( see NYCTL 1998-1 Trust v Mayfield , 17 Misc 3d 268 , 276 [Sup Ct, Richmond County 2007]). To construe the provisions of the contract obligating plaintiffs to accept the properties on an "as is" basis as relieving the Seller from its contractual requirement to convey them "free of all encumbrances," would render the latter contractual provision meaningless ( see Zullo, 57 AD3d at 537).
"The purpose of the as is' clause is to negate the existence of any representations by the seller as to the particular condition, fitness and type of construction of the premises sold. It merely means that the purchaser must take that for which he bargained, reasonable use, wear, tear and natural deterioration excepted" ( Redner v City of New York, 53 Misc 2d 148, 151 [Civil Ct, New York County 1967]).
Other courts have permitted purchasers to reject deeds at closing and recover their down payments when they were faced with less severe title impediments than the instant subway/transit easements. For example, a restriction in the chain of title of a Fifth Avenue apartment building that the property could not be used as a blacksmith shop, slaughter house, or other similar noxious use (which use would be forbidden by the applicable zoning law) rendered the title unmarketable because "[a] reasonable doubt as to the title is sufficient to authorize its rejection" ( see Tenny Estates, Inc. v Safan Realty Corp., 174 Misc 575, 578 [City Ct, New York County 1940]). In another case, a "burial reservation" rendered the title unmarketable as it "inhibit[ed] development of the property for residential use" ( Patten of New York, 193 AD2d 1009).
While the court is sympathetic to the Seller's predicament, the inescapable conclusion is that the Seller failed to except the easements from the contracts and thereby was unable to transfer title free and clear of these encumbrances ( see Atlas Realty of East Meadow, Inc. v Ostrofsky, 56 Misc 2d 787, 788 [Sup Ct, Nassau County 1967] ["the result is unfortunate but if a vendor wishes to convey subject to an encumbrance affecting title the contract should include the appropriate exception, and
the court may not impose an agreement other than that which was arrived at between the parties"] [internal citation omitted]). The contracts at issue were between sophisticated commercial parties represented by counsel. If the parties had intended that plaintiffs would acquire the two properties subject to the easements, the applicable contracts would have so provided ( see Novelty Crystal Corp. v PSA Inst. Partners, L.P. , 49 AD3d 113 , 115 [2d Dept 2008]). Thus, the Seller violated the clear terms of the contracts with respect to two of the four subject properties and since all four properties were to be conveyed simultaneously, the Seller breached all four contracts and must return the down payments to plaintiffs ( see Nowak v Rametta , 43 AD3d 1120 , 1123 [2d Dept 2007]).
The court notes that plaintiffs' letter to the Seller demanding a return of their down payments was dated April 8, 2008, or two days prior to the scheduled April 10th closing. As the easements rendered the title incurably defective, however, it was not necessary for plaintiffs to await the closing date to demand a return of their down payments ( see Atlas Realty, 56 Misc 2d at 789).
The contracts provide for the return of the down payments, the net cost of examining title, and the net cost of any related survey. The contracts do not provide for an award of the "development costs" or other consequential damages which are being sought by plaintiffs in their second cause of action. Accordingly, to the extent plaintiffs' second cause of action requests award of development costs or other consequential damages, such request is denied ( see Atlas Realty, 56 Misc 2d at 789).
CONCLUSION
Plaintiffs' motion is granted to the extent that plaintiffs are awarded a judgment for $3,621,150, plus the net cost of examining titles and the net cost of any related surveys (to be agreed upon by the parties or to be determined at a hearing), with interest thereon from April 10, 2008.
This is the sum of (a) the $200,000 down payment for the 325 Schermerhorn property (Hager Aff., ¶ 7); (b) the $344,550 down payment and the additional sum of $1,076,600 for the 345 Schermerhorn property (¶¶ 11-12); (c) the $1,000,000 down payment for the 359 Schermerhorn property (¶ 16); and (d) the $1,000,000 down payment for the 350 Livingston property (¶ 21).
The alternative request of plaintiffs and NDG to dismiss all counterclaims against them is dismissed as moot. The Seller's request for leave to serve an amended answer asserting additional counterclaims against plaintiffs and NDG is also dismissed as moot.
The foregoing constitutes the decision and order of the court.