Laba v. Carey

Laba (plaintiff) and Carey (defendant) contracted for the sale of Carey’s property. The contract of sale required Carey to delivery title free of all encumbrances except those noted in the contract. The contract was made subject to the “covenants, restrictions, utility agreement and easements of record,” provided they have not been violated. A title search revealed the existence of a recorded telephone easement and a “Waiver of Legal Grades” restrictive covenant, which required any successive owner of the property to install a sidewalk in accordance with the legal grade at any time the Commissioner of Highways directed. The sidewalk in front the subject property and all the surrounding property was below legal grade, but neither the easement nor the covenant had ever been violated. The title insurance company reported that the seller had good and marketable title, which it would insure, but excluded the easement and covenant from its coverage. Laba informed Carey that he was prepared to close provided that the existing tenant had vacated the premises. Carey responded that their agreement only obligated him to serve the tenant a notice of termination. Laba then refused to close, claiming a failure to deliver good, marketable and insurable title due to the easement and covenant. Laba sued to recover his deposit, legal fees, and title examination fees. The trial court dismissed the complaint, but the appellate division reversed without awarding legal fees. Carey appealed.