L. Smirlock Realty Corp. v. Title Guarantee Company

In November 1967, the town of Hempstead, New York (Hempstead) condemned and acquired title to property located in Long Island. The condemned property was located on and directly adjacent to 31-39 Carvel Place (the property), which was owned by Bass Rock Holdings, Inc. In 1969 foreclosure proceedings commenced against the property. The attorney for Hempstead spoke with the attorney for a potential purchaser, who later formed L. Smirlock Realty Corp. (Smirlock) (plaintiff), and informed the potential purchaser that a portion of the property had been condemned by Hempstead and should be excluded from the foreclosure proceedings. The purchase agreement between Bass Rock Holdings and Smirlock established that Smirlock would receive the condemnation award owed by Hempstead. Bass Rock Holdings sold the property to Smirlock, and a title policy was issued by Title Guarantee Company (defendant). Following the sale, Smirlock spent approximately $95,000 improving the property and leased out the entire premises. Shortly thereafter, it was discovered that Title Guarantee had failed to conduct a master check and that access roads to the property had been condemned by Hempstead. This significantly impeded access to the property, rendering it valueless. Consequently, the lessee vacated the premises, and the property went into foreclosure. Smirlock filed an action against Title Guarantee for damages, citing Title Guarantee’s failure to discover the condemned roadways as part of the title search prior to issuing the title policy. Title Guarantee raised the affirmative defense of misrepresentation, alleging that Smirlock had knowledge of the condemnation affecting the property and failed to disclose its knowledge to Title Guarantee. The trial court found in favor of Title Guarantee because Smirlock had withheld a material fact. The appellate court affirmed but did not believe that the misrepresentation was material. Instead, the appellate court asserted that had Title Guarantee been informed by Smirlock of the condemnation affecting the property, Title Guarantee would have checked records that would have led it to the discovery of the access-road condemnation. Smirlock filed an appeal.