Real Property Law

Obligation to Deliver Premises Vacant Does Not Survive Closing

Novelty Crystal Corp. v. PSA Institutional Partners, L.P.

NYLJ 1/23/08, p. 31, col. 1

AppDiv, Second Dept. (Opinion by Spolzino, J.)

In an action by purchaser of real property for breach of its contract obligation to deliver the premises vacant and clean, seller appealed from the Supreme Court's grant of summary judgment to purchaser. The Appellate Division reversed, holding that even if seller had breached, purchaser's cause of action did not survive closing.

In the contract of sale, seller agreed to deliver the premises 'vacant and clean, free of all personalty, tenancies and occupancies.' The contract also provided that seller 'may remove any and all storage bins and all other personalty' from the premises. Seller did not remove several storage bins, and purchaser allegedly spent $17,000 removing the bins. Purchaser then brought this action, seeking damages both for breach of contract and for trespass. Although the Supreme Court dismissed purchaser's trespass claim, that court awarded purchaser summary judgment on the issue of liability on the breach of contract claim. Seller appealed, and purchaser cross-appealed from dismissal of the trespass claim.

In holding that the Supreme Court should have awarded seller summary judgment on all claims, the Appellate Division agreed with the Supreme Court that the sale contract obligated seller to remove all personalty, despite the language that provided that seller 'may remove' personalty. But the court went on to hold that the obligation was merged in the deed, and extinguished upon the closing of title. The court noted that, in general, contract obligations are merged into the deed unless they are collateral to the transfer of title, or unless the contract provides that the obligation shall survive closing. Here, the court held that obligation to deliver the premises vacant and clean is an aspect of delivering possession, and not collateral to the transfer. Therefore, in the absence of a contract provision indicating that the obligation survived closing, seller was entitled to summary judgment.

COMMENT

When an obligation in a contract of sale cannot be performed before closing, courts treat the obligation as collateral, and hold that it is not merged into the deed. Thus, in Kilbane v. Scarsdale Downs Homes, 132 N.Y.S.2d 234, the court held that seller's obligation to construct the building according to certain specifications as provided in the contract of sale survives closing. Since there was no way for seller to complete construction of the structure before closing, the court inferred that the parties intended this obligation to survive closing and therefore treated it as a collateral obligation.

Even when an obligation can be completed before closing, if the obligation concerns matters of personal property, courts generally treat the obligation as collateral. In Ferro v. Miller, 41 Misc. 2d 331, where buyer brought an action after closing for breach of contract for seller's failure to deliver a specific refrigerator, washer, and dryer as required by the contract of sale, the court held that the term was a collateral obligation and thus survived closing. The court stated that obligations in a contract of sale not related to title, possession, or quantity of real property are typically merged into the deed upon closing.

By contrast, if the obligation could have been performed by the time of closing, and concerns the transfer of an interest in real property, that obligation will be merged into the deed, precluding purchaser from prevailing on a breach of contract claim after closing. Thus, in Alexy v. Salvador, 217 A.D.2d 877, where the seller brought an action for breach of contract due to buyer's failure to convey an easement to beach property pursuant to the contract of sale, the court held that the obligation did not survive closing of title on the land to which the easement would have been appurtenant. Since the obligation to grant an easement concerned the conveyance of an interest in real property, the obligation was merged into the deed to the property that was the main focus of the parties' contract.

 

Seller Made Reasonable Efforts to Clear Title Defect

Karl v. Kessler

NYLJ 1/18/08, p. 33, col. 2

AppDiv, Second Dept. (memorandum opinion)

In an action by contract vendee for specific performance of a contract to purchase real property, contract vendee appealed from the Supreme Court's grant of summary judgment to sellers. The Appellate Division affirmed, concluding that contract vendee had raised no question of fact to indicate that seller had not made reasonable efforts to clear up a title defect.

Before the parties entered into the subject contract of sale, sellers had contracted to sell the property to other contract vendees, but those prior vendees had been unable to obtain financing. After the subject contract of sale, but before closing, prior vendees brought an action for specific performance, and filed a lis pendens. Contract vendees under this contract refused to waive the defect in title, and sellers failed to cure the defect by the original closing date. Sellers then adjourned the closing for 60 days and attempted to settle the litigation with prior vendees. When the lawsuit was not resolved within that period, sellers invoked a contract provision entitling them to return contract vendees' down payment and to cancel the contract. Contract vendees then brought this action for specific performance. The Supreme Court awarded summary judgment to sellers, and contract vendees appealed.

In affirming, the Appellate Division noted that when a contract entitles seller to return a down payment upon inability to clear a title defect, seller has an obligation to make good faith efforts to clear the title defect. In this case, however, sellers presented evidence that they had made an offer to settle the pending litigation, and that when the settlement offer failed, they had diligently defended the action and conducted discovery. The only evidence presented by contract vendee was evidence that sellers had not made a motion to dismiss in the pending litigation, but the court indicated that failure to file that motion was an appropriate litigation strategy, and did not raise a question of fact about sellers' good faith. As a result, sellers were entitled to summary judgment.

 

Fraud and Breach of Contract Allegations Insufficient

F.A.S.A. Construction

Corp. v. Degenshein

NYLJ 2/4/08, p. 32, col. 4

AppDiv, Second Dept. (memorandum opinion)

In purchaser's action for breach of contract and fraud, seller appealed from the Supreme Court's denial of seller's summary judgment motion. The Appellate Division reversed and granted seller's motion, holding that purchasers allegations were insufficient to support their claims.

Seller sold a parcel to purchaser for $630,000 in 1998. In a rider to the sale contract, seller represented that subdivisions maps had been filed in the count clerk's office, and that the map contained no less than 20 approved, buildable lots for single-family dwellings. Later, the village planning board informed purchaser that the subdivision map was stale, and that new approval would be required. In the interim, the village had increased minimum lot sizes in the area, so that the property could not be subdivided into 20 lots. Purchaser then sold the property for $1,250,000 and brought this action against the original seller, alleging breach of contract and fraud.

In holding that seller was entitled to summary judgment, the court first noted that the breach of contract claim was insufficient because the sale contract included no representation as to the validity of the filed map. Moreover, the court noted that the merger clause in a rider to the sale contract barred any breach of contract claim. The Court then held that the fraud claim could not stand, noting first that the change in the zoning ordinance was a matter of public record, and that purchaser could have discovered the change through the exercise of reasonable diligence. As a result, as a matter of law, purchaser could not establish justifiable reliance on any misrepresentation concerning the zoning ordinance. The Court then held that the representation that the filed subdivision map contained no less than 20 lots did not constitute fraud, because the seller could not have known that after the closing, the village planning board would invalidate the subdivision map.

 

Deed Did Not Extend to Center of Paper Road

Environmental Properties, Inc. v. S.P.M. Tech, Inc.

NYLJ 2/11/08, p. 33, col. 4

AppDiv, Second Dept. (memorandum opinion)

In an action by a landowner to establish ownership to the center of a proposed county road that abuts its land, landowner appealed from the Supreme Court's determination that landowner's parcel extended only to the boundary of the proposed road, not to the center. The Appellate Division affirmed, holding that the presumption of ownership to the center of the road had adequately been rebutted.

The deeds in landowner's chain of title all described the parcel by reference to a map that depicted an adjacent 'proposed county road.' Landowner contended that this deed description established landowner's ownership to the center of the road. In 2004, the county relinquished any right it might have in the proposed road. The following year, neighbor acquired a deed to the land that
had been identified as the proposed county road. A dispute arose between landowner and neighbor over ownership of the road bed. Supreme Court held that landowner owned only the land to the boundary of the proposed county road, but landowner appealed.

In affirming, the Appellate Division acknowledged the rule that when a landowner sells a parcel by reference to a map, and the map shows that the lot abuts on a street, the conveyance presumptively conveys fee ownership to the center of the street. In this case, however, the presumption was rebutted by evidence that the parties' common grantor, in 1992, used two separate deeds to convey two separate parcels, described by metes and bounds, to the same grantee.

Landowner's parcel included the land only to the exterior boundary of the roadway. This evidence, the court concluded, rebutted any presumption that landowner's title was to extend to the center of the roadway.

Obligation to Deliver Premises Vacant Does Not Survive Closing

Novelty Crystal Corp. v. PSA Institutional Partners, L.P.

NYLJ 1/23/08, p. 31, col. 1

AppDiv, Second Dept. (Opinion by Spolzino, J.)

In an action by purchaser of real property for breach of its contract obligation to deliver the premises vacant and clean, seller appealed from the Supreme Court's grant of summary judgment to purchaser. The Appellate Division reversed, holding that even if seller had breached, purchaser's cause of action did not survive closing.

In the contract of sale, seller agreed to deliver the premises 'vacant and clean, free of all personalty, tenancies and occupancies.' The contract also provided that seller 'may remove any and all storage bins and all other personalty' from the premises. Seller did not remove several storage bins, and purchaser allegedly spent $17,000 removing the bins. Purchaser then brought this action, seeking damages both for breach of contract and for trespass. Although the Supreme Court dismissed purchaser's trespass claim, that court awarded purchaser summary judgment on the issue of liability on the breach of contract claim. Seller appealed, and purchaser cross-appealed from dismissal of the trespass claim.

In holding that the Supreme Court should have awarded seller summary judgment on all claims, the Appellate Division agreed with the Supreme Court that the sale contract obligated seller to remove all personalty, despite the language that provided that seller 'may remove' personalty. But the court went on to hold that the obligation was merged in the deed, and extinguished upon the closing of title. The court noted that, in general, contract obligations are merged into the deed unless they are collateral to the transfer of title, or unless the contract provides that the obligation shall survive closing. Here, the court held that obligation to deliver the premises vacant and clean is an aspect of delivering possession, and not collateral to the transfer. Therefore, in the absence of a contract provision indicating that the obligation survived closing, seller was entitled to summary judgment.

COMMENT

When an obligation in a contract of sale cannot be performed before closing, courts treat the obligation as collateral, and hold that it is not merged into the deed. Thus, in Kilbane v. Scarsdale Downs Homes, 132 N.Y.S.2d 234, the court held that seller's obligation to construct the building according to certain specifications as provided in the contract of sale survives closing. Since there was no way for seller to complete construction of the structure before closing, the court inferred that the parties intended this obligation to survive closing and therefore treated it as a collateral obligation.

Even when an obligation can be completed before closing, if the obligation concerns matters of personal property, courts generally treat the obligation as collateral. In Ferro v. Miller, 41 Misc. 2d 331, where buyer brought an action after closing for breach of contract for seller's failure to deliver a specific refrigerator, washer, and dryer as required by the contract of sale, the court held that the term was a collateral obligation and thus survived closing. The court stated that obligations in a contract of sale not related to title, possession, or quantity of real property are typically merged into the deed upon closing.

By contrast, if the obligation could have been performed by the time of closing, and concerns the transfer of an interest in real property, that obligation will be merged into the deed, precluding purchaser from prevailing on a breach of contract claim after closing. Thus, in Alexy v. Salvador, 217 A.D.2d 877, where the seller brought an action for breach of contract due to buyer's failure to convey an easement to beach property pursuant to the contract of sale, the court held that the obligation did not survive closing of title on the land to which the easement would have been appurtenant. Since the obligation to grant an easement concerned the conveyance of an interest in real property, the obligation was merged into the deed to the property that was the main focus of the parties' contract.

 

Seller Made Reasonable Efforts to Clear Title Defect

Karl v. Kessler

NYLJ 1/18/08, p. 33, col. 2

AppDiv, Second Dept. (memorandum opinion)

In an action by contract vendee for specific performance of a contract to purchase real property, contract vendee appealed from the Supreme Court's grant of summary judgment to sellers. The Appellate Division affirmed, concluding that contract vendee had raised no question of fact to indicate that seller had not made reasonable efforts to clear up a title defect.

Before the parties entered into the subject contract of sale, sellers had contracted to sell the property to other contract vendees, but those prior vendees had been unable to obtain financing. After the subject contract of sale, but before closing, prior vendees brought an action for specific performance, and filed a lis pendens. Contract vendees under this contract refused to waive the defect in title, and sellers failed to cure the defect by the original closing date. Sellers then adjourned the closing for 60 days and attempted to settle the litigation with prior vendees. When the lawsuit was not resolved within that period, sellers invoked a contract provision entitling them to return contract vendees' down payment and to cancel the contract. Contract vendees then brought this action for specific performance. The Supreme Court awarded summary judgment to sellers, and contract vendees appealed.

In affirming, the Appellate Division noted that when a contract entitles seller to return a down payment upon inability to clear a title defect, seller has an obligation to make good faith efforts to clear the title defect. In this case, however, sellers presented evidence that they had made an offer to settle the pending litigation, and that when the settlement offer failed, they had diligently defended the action and conducted discovery. The only evidence presented by contract vendee was evidence that sellers had not made a motion to dismiss in the pending litigation, but the court indicated that failure to file that motion was an appropriate litigation strategy, and did not raise a question of fact about sellers' good faith. As a result, sellers were entitled to summary judgment.

 

Fraud and Breach of Contract Allegations Insufficient

F.A.S.A. Construction

Corp. v. Degenshein

NYLJ 2/4/08, p. 32, col. 4

AppDiv, Second Dept. (memorandum opinion)

In purchaser's action for breach of contract and fraud, seller appealed from the Supreme Court's denial of seller's summary judgment motion. The Appellate Division reversed and granted seller's motion, holding that purchasers allegations were insufficient to support their claims.

Seller sold a parcel to purchaser for $630,000 in 1998. In a rider to the sale contract, seller represented that subdivisions maps had been filed in the count clerk's office, and that the map contained no less than 20 approved, buildable lots for single-family dwellings. Later, the village planning board informed purchaser that the subdivision map was stale, and that new approval would be required. In the interim, the village had increased minimum lot sizes in the area, so that the property could not be subdivided into 20 lots. Purchaser then sold the property for $1,250,000 and brought this action against the original seller, alleging breach of contract and fraud.

In holding that seller was entitled to summary judgment, the court first noted that the breach of contract claim was insufficient because the sale contract included no representation as to the validity of the filed map. Moreover, the court noted that the merger clause in a rider to the sale contract barred any breach of contract claim. The Court then held that the fraud claim could not stand, noting first that the change in the zoning ordinance was a matter of public record, and that purchaser could have discovered the change through the exercise of reasonable diligence. As a result, as a matter of law, purchaser could not establish justifiable reliance on any misrepresentation concerning the zoning ordinance. The Court then held that the representation that the filed subdivision map contained no less than 20 lots did not constitute fraud, because the seller could not have known that after the closing, the village planning board would invalidate the subdivision map.

 

Deed Did Not Extend to Center of Paper Road

Environmental Properties, Inc. v. S.P.M. Tech, Inc.

NYLJ 2/11/08, p. 33, col. 4

AppDiv, Second Dept. (memorandum opinion)

In an action by a landowner to establish ownership to the center of a proposed county road that abuts its land, landowner appealed from the Supreme Court's determination that landowner's parcel extended only to the boundary of the proposed road, not to the center. The Appellate Division affirmed, holding that the presumption of ownership to the center of the road had adequately been rebutted.

The deeds in landowner's chain of title all described the parcel by reference to a map that depicted an adjacent 'proposed county road.' Landowner contended that this deed description established landowner's ownership to the center of the road. In 2004, the county relinquished any right it might have in the proposed road. The following year, neighbor acquired a deed to the land that
had been identified as the proposed county road. A dispute arose between landowner and neighbor over ownership of the road bed. Supreme Court held that landowner owned only the land to the boundary of the proposed county road, but landowner appealed.

In affirming, the Appellate Division acknowledged the rule that when a landowner sells a parcel by reference to a map, and the map shows that the lot abuts on a street, the conveyance presumptively conveys fee ownership to the center of the street. In this case, however, the presumption was rebutted by evidence that the parties' common grantor, in 1992, used two separate deeds to convey two separate parcels, described by metes and bounds, to the same grantee.

Landowner's parcel included the land only to the exterior boundary of the roadway. This evidence, the court concluded, rebutted any presumption that landowner's title was to extend to the center of the roadway.