Facts
- Pauline and Thomas Caselli (purchasers) entered into a contract to buy Joseph and Donna Messina’s (sellers’) one-family residence in Brooklyn, New York.
- The purchasers paid a down payment that was held in escrow pending closing.
- The contract stated the conveyance was “subject to covenants and restrictions of record,” so long as those matters were not violated by the present structure or present use of the premises; the parties also added that such matters must not “render title unmarketable.”
- The contract further required the sellers to convey, and the purchasers to accept, “such title as any New York City title company shall be willing to approve and insure in accordance with its standard form of title policy,” subject to the contract’s stated matters.
- A title report disclosed recorded covenants and restrictions affecting the property.
- After reviewing the report, the purchasers asserted that the recorded covenants and restrictions made the title unmarketable and demanded return of their down payment.
- The sellers refused, and the purchasers sued to recover the down payment (and related damages), alleging that the sellers could not tender the quality of title required by the contract.
- In the Civil Court of the City of New York, Kings County, both sides moved for summary judgment; the court denied both motions.
- Both sides appealed to the Appellate Term.
Issues
- Whether recorded covenants and restrictions of record, not shown to be violated by the existing structure or present use, rendered title “unmarketable” under a contract that expressly made the sale subject to those recorded matters.
- Whether a clause requiring title insurable by a New York City title company under its standard form policy barred the purchasers from rescinding and recovering the down payment based only on the presence of such recorded restrictions in the title report.
Decision
- The Appellate Term modified the Civil Court’s order.
- The court granted summary judgment to the sellers, dismissed the purchasers’ complaint, and denied the purchasers’ request for summary judgment.
- The court held that the recorded covenants and restrictions did not render title unmarketable within the meaning of this contract because they were not violated by the present structure or use, and the contract did not reflect any special intended use that the restrictions would defeat.
Legal Principles
- A “title company approval/standard policy” clause generally requires only a title that a reputable title company will insure under its standard form policy, which commonly contains ordinary exceptions consistent with the contract; it does not require an unrestricted or exception-free policy.
- When a real-estate contract provides that the property is conveyed subject to covenants and restrictions of record, the buyer cannot treat the mere existence of those recorded matters as a title defect if the contract allows them and the existing structure and use do not violate them.
- “Marketable title” under such an agreement is measured against the contract’s terms; recorded restrictions that are typical in practice and not presently violated do not, without more, create a defect giving the purchaser a right to cancel and recover a down payment.
- If a purchaser claims that restrictions make title unmarketable, the purchaser must show a contract-based reason the restrictions are unacceptable (for example, a present violation or an agreed-upon use that the restrictions would prohibit). Silence in the contract about any special use weighs against the purchaser.
Conclusion
Caselli v. Messina holds that purchasers who agreed to take title subject to covenants and restrictions of record, and who agreed that title need only be insurable by a New York City title company under its standard form policy, could not rescind and recover their down payment merely because a title report listed recorded restrictions, where the current structure and use did not violate those restrictions and the contract did not provide for any special intended use.