On January 19, 1948, the defendant Handelman, acting for himself and the defendant Welsher, signed a contract — to which it will be convenient to refer as the January contract — by which he agreed to purchase from one Harry Lefrak a parcel of land, comprising ninety lots in the city of Long Beach, Nassau County. Under that contract the defendant, Handelman, was to take title "Subject to covenants, restrictions and easements of record." (Emphasis supplied.)
Thereafter, on February 5, 1948, the defendant, Handelman, and the plaintiff, Friedman, entered into a written executory contract — hereinafter referred to as the February contract — by which the defendant agreed to assign to plaintiff the January contract for the sum of $7,000, of which $2,500 was deposited as a down payment.
There is also a provision requiring the defendant Handelman, as assignor, to deliver to his attorney, as escrow agent, the January contract and an assignment thereof to the plaintiff, to be held by such agent in escrow under stated conditions of which our chief concern is with paragraph 2c: "c. In the event the Home Title Insurance Company shall refuse to insure good and marketable title to at least 80 of the 90 lots described in the contract of sale hereinabove referred to, then this agreement, at the option of the Assignee, may be declared null and void and the Assignor shall thereupon return to the Assignee the sum of $2,500. this day deposited, and upon the return of said sum the escrow holder may thereupon return to the Assignor the contract of sale and assignment thereof held by him in escrow. In the event the Assignor fails to return the said sum of $2,500. to the Assignee on or before February 28, 1948 in accordance with the provisions of this paragraph, the escrow holder shall deliver to the Assignee the contract of sale and assignment held by him in escrow without any further payment therefor by the Assignee."
The report of the title company showed the restrictions mentioned above, and stated its refusal to issue its policy insuring good and marketable title to at least eighty of the ninety lots described in the January contract, without excepting those restrictions from the coverage of its policy. Thereupon the plaintiff, as assignee under the February contract — asserting the right claimed by him to be reserved under paragraph 2c thereof (quoted supra) — declared the February contract null and void and demanded the return of his deposit of $2,500. The subsequent refusal by the defendant to comply with plaintiff's demand gave rise to this action.
At Trial Term — where the right to a jury trial was waived and it was stipulated that no formal findings of fact and conclusions of law be made — the Trial Justice, after a trial of the issues tendered, directed judgment in favor of the plaintiff in the sum of $2,500 and interest.
The Justice at Trial Term held that, whatever the rights and liabilities of the defendant Handelman and the landowner Lefrak may have been under the January contract, the plaintiff Friedman, when he entered into the February contract with Handelman, caused to be inserted in unequivocal terms the
At the Appellate Division the judgment entered at Trial Term was reversed and the complaint dismissed on the law and the facts (two Justices dissenting); certain findings of fact and a single conclusion of law contained in the opinion rendered by the Trial Justice were disapproved and disallowed and in lieu thereof the court, in an opinion Per Curiam, made new findings of fact and conclusions of law. As already indicated, the January contract — which was initialed by the parties and made a part of the February agreement — contained the clause "SUBJECT to covenants, restrictions and easements of record." The Appellate Division found, in effect, that this clause constituted notice to plaintiff of covenants affecting the lots in question. Accordingly, it was held, the plaintiff could not have expected that title insurance could be procured which in scope was broader than was justified by the condition of the property as described in the January contract.
Clearly the recorded restriction reported by the Home Title Insurance Company, which restriction forbade "* * * the erection on the aforesaid property of any structure except a dwelling on not less than 2 plots", is an incumbrance so substantial as to make unmarketable the title to at least eighty of the ninety lots to which the January contract referred. (Bull v. Burton, 227 N.Y. 101, 111.) When unqualified title insurance was refused on those eighty lots that circumstance, in our view, was enough, within the unequivocal language of paragraph 2c of the February contract, to entitle the plaintiff to the return of his down payment.
The judgment of the Appellate Division should be reversed and that of the Trial Term affirmed, with costs in this court and in the Appellate Division.
I dissent and vote for affirmance. The February contract, as written, constitutes an assignment of the January contract and makes no exception to its provision that title was to be "SUBJECT to covenants, restrictions and easements of record." If more were needed to show the intent of the parties another clause specifically recites that the January contract "has been initialed by the parties hereto and made part hereof". When such plain words are given their usual and ordinary meaning, it is quite apparent that the parties intended to incorporate the provisions of the January contract into the February contract. Surely had the intent been
Admittedly, the presence of a restrictive covenant running with the land is sufficient ground for the rejection of title by a vendee if the contract is to sell free from all incumbrances. In this event only may a covenant be regarded as such an incumbrance as to render a title unmarketable. (See Kimball Co. v. Fox, 239 N.Y. 554.) Nor is Bull v. Burton (227 N.Y. 101) to the contrary. The dissenting opinion therein (p. 114) clearly shows that no mention of the covenants there at issue — which were, indeed, much more restrictive than that here — was included in the contract. In addition we place considerable reliance upon the second sentence of the covenant before us which ties it affirmatively to the local municipal zoning regulations. The restrictions therefore amount to no more than those which by law an owner would be compelled to observe in any case.
The judgment should be affirmed, with costs.