Opinion
April 5, 1971
In an action by vendees under a contract to sell real property to recover their down payment, to enforce their vendee's lien therefor and to recover their expenses for examination of title and their counsel fees, plaintiffs appeal from (1) an order of the Supreme Court, Queens County, dated November 5, 1970, which denied their motion for summary judgment and granted defendant's cross motion for summary judgment, dismissing plaintiffs' complaint, and (2) a judgment of said court, entered November 9, 1970, in favor of defendant, upon said order. Judgment and order reversed, on the law, without costs; plaintiffs' motion granted to the extent of (a) awarding them $5,700, representing their down payment, plus interest, (b) impressing and enforcing a lien upon the subject premises for said amount plus interest and (c) awarding plaintiffs $326.20 for the title insurance fees, and otherwise denied; and defendant's cross motion granted to the extent of dismissing plaintiffs' claim for recovery of their counsel fees and otherwise denied. The contract provided that the premises were sold subject to "4. Covenants, restrictions, utility agreement and easement of record, if any, now in force, provided same are not now violated" and "5. Any state of facts an accurate survey may show, provided same does not render title unmarketable." The contract also included a "title insurance clause" which provides: "The seller shall give and the purchaser shall accept a title such as reputable any title company [sic] will approve and insure." It is alleged by plaintiffs that they tendered the balance of the purchase price to defendant on the date set for closing of title, but rejected the deed offered because defendant failed to tender an insurable and marketable title. It appears that plaintiffs' title company discovered the existence of a restrictive covenant against the subject premises and reported it as an exception to the title it would insure. The restrictive covenant is entitled "Waiver of Legal Grades" and was made with the City of New York by defendant's predecessor in title. According to the terms of the covenant, the City of New York issued a certificate of occupancy for the property in return for the promise by the owner and his successors and assigns to install sidewalks in accordance with legal grade at such time as the Commissioner of Highways might direct. Plaintiffs contend that due to this exception noted by the title company, as well as an accurate survey of the premises which indicates that the sidewalks, yard and building are all below legal grade, the title tendered by defendant is uninsurable and unmarketable. In our opinion, plaintiffs' contention that defendant failed to tender an insurable title is meritorious. The standard insurability clause contained in the subject contract constitutes an agreement between the parties rendering the title company as the sole arbiter of insurability; and, even when the title company is clearly wrong, the mere fact of refusing to unconditionally insure justifies a purchaser in refusing to accept the tendered title ( Gilchrest House v. Guaranteed Tit. Mtge. Co., 277 App. Div. 788, affd. 302 N.Y. 852; Flanagan v. Fox, 6 Misc. 132, affd. 144 N.Y. 706). It is true, as the seller contends, that pursuant to the contract the buyers agreed to take the property subject to "Covenants * * * if any, now in force, provided same are not now violated." In our opinion, the covenant is not now being violated and the "insurability" clause and the "subject to covenants" clause must be read together ( Kopp v. Barnes, 10 A.D.2d 532, 534). Nevertheless, the contract includes the third provision which states that the premises were sold subject to "Any state of facts an accurate survey may show, provided same does not render title unmarketable." The survey herein indicates that the sidewalks abutting this property are below the legally established grade. Even though the sidewalk grade as presently constituted is tolerated by the city, the Commissioner of Highways has the authority, pursuant to the covenant, to raise the grading in the future. In our opinion, the state of facts reflected by the survey, and the Commissioner's power to raise the sidewalk grade in the future, constitute an encumbrance upon the property ( Acme Realty Co. v. Schinasi, 215 N.Y. 495). Whether or not this encumbrance renders title unmarketable is immaterial, since plaintiffs are still entitled to recover their down payment on the ground of the refusal by the title company to insure title unqualifiedly. Where, as here, the contract requires that the seller shall give and the purchasers shall accept a title such as a designated title company will approve and insure, the seller assumes the burden of delivering a title which the specified title company will approve and insure unconditionally and without exceptions ( Flanagan, supra; Gilchrest, supra). Where a vendor of real property has acted in good faith in accordance with the contract, the purchaser may recover only the amount he has already paid on the purchase price, together with necessary expenses incurred pursuant to the contract, such as costs for investigating title and reasonable attorney's fees ( Northridge v. Moore, 118 N.Y. 419; Maupai v. Jackson, 139 App. Div. 524; Mokar Props. Corp. v. Hall, 6 A.D.2d 536). Nevertheless, the parties to a contract may agree to extend or restrict the liability consequent upon a breach ( Mokar, supra). In the case at bar, the parties limited the liability consequent upon breach by the seller to the down payment on the contract and the reasonable expenses of the examination of title to the subject premises and of the survey. Attorney's fees were excluded. Accordingly, in the absence of bad faith, which was neither alleged nor proved, plaintiffs are entitled to an award of $5,700, representing their down payment on the contract, plus interest, to enforcement of a lien therefor, and to an award of $326.20, representing their title insurance fees. Hopkins, Acting P.J., Christ, Brennan and Benjamin, JJ., concur. Latham, J., dissents and votes to affirm the order and the judgment upon the opinion of Mr. Justice FRANK D. O'CONNOR at the Special Term.