Joseph v. Josanth Realty Corp., 24 N.Y.2d 1030 (1986)

Damages for breach of a covenant against encumbrances are measured by the difference between the property’s value before and after the defect is discovered.

Summary

Joseph sued Josanth Realty Corp. for breach of covenant against encumbrances after discovering the State had previously acquired a portion of the property. The trial court calculated damages based on square footage and an added amount for reduced marketability. The Appellate Division struck the marketability addition. The Court of Appeals reversed, holding that damages should be calculated by subtracting the property’s value after discovering the defect from its value before the defect existed. The Court remitted the case because the lower courts failed to adequately explain their deviation from the expert valuations presented.

Facts

In 1974, Joseph purchased property from Josanth Realty Corporation. Subsequently, Joseph learned that in 1971, the State of New York had acquired a portion of the property and a permanent easement from Josanth. The State paid Josanth $46,000 for the acquisition. Joseph then sued Josanth for breach of the covenant against encumbrances.

Procedural History

The trial court awarded Joseph damages. The Appellate Division modified the award by striking a $10,000 component. Joseph appealed to the Court of Appeals.

Issue(s)

Whether the lower courts properly calculated damages for breach of the covenant against encumbrances.

Holding

No, because the proper measure of damages is the difference between the property’s value before the defect and its value after the defect is discovered, and the lower courts did not adequately explain their deviation from presented expert valuation evidence.

Court’s Reasoning

The Court of Appeals stated that the “general rule is that damages for a breach of covenant against encumbrances or a breach of a warranty of title are measured by subtracting the value of the property after the defect is discovered from its value before the defect existed.” The court found that the lower courts appeared to have ignored this rule, compensating Joseph only for the direct damages related to the property taken by the State. While the trial court’s additional award might have been an attempt to award consequential damages, it was not related to any specific evidence. While a court is not bound to accept an expert’s valuation even if it is the only evidence presented, the court must provide sufficient explanation for its decision and there must be other evidence in the record to support the court’s determination. Here, the courts failed to explain why they departed from the expert’s values or how they arrived at the damage award. The case was remitted to the Appellate Division for further consideration and explanation or further action as warranted.