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Atim Family Partnership v. LMW Properties Corporation

A-5365-06T3 (N.J. Super. App. Div. 2009) (Unpublished)

DEEDS; ASSIGNMENTS — Even though a deed does not contain restrictions that were called for in an assignment of contract document, if the provision in the assignment expressly or implicitly survived closing of the assigned contract, those restrictions are enforceable as between the assignor and the assignee.

A husband and wife had a summer home at a beach-front location. A family partnership, in which they were general partners, owned another beach-front property. A vacant lot separated two properties. The owners of the vacant parcel contracted to sell the lot to a third party. The family partnership (through a person authorized to act on its behalf pursuant to a power of attorney) contracted with the proposed purchaser to assign its purchase right to the family partnership on the condition that: (a) the family partnership was acquiring the lot for the purpose of constructing a garage addition to its existing home; and (b) the improvements would have a minimum set back of thirty-five feet from the bulkhead. The vacant lot was then sold to the family partnership but the restrictions were not in the deed. The assignor believed the assignee’s representations were sound. The family partnership demolished the existing home on the lot that it originally owned and applied to construct a single-family dwelling built over both lots. The assignor-seller of the vacant lot objected, because it claimed that the proposed construction would violate the development restrictions contained in the assignment. The family partnership filed for declaratory judgment action that the restrictions contained in the assignment were unenforceable.

The lower court concluded that the bulkhead restriction was enforceable while the development restriction was unenforceable. It found that the second restriction relating to set back from the bulkhead could not be subject to “any reasoned interpretation on the facts of this case other than what they say.” The lower court also believed the clause should survive because the assignment agreement stated that, to the extent the provisions were found to be enforceable, they should survive. Further, the court ruled that the provision was a collateral agreement that survived the merger doctrine. It held that restriction limiting the lot for building a garage was an unenforceable representation that was not material to the agreement. It ruled that the restriction did not impact the “view issue,” because all construction had to be thirty-five feet from the bulkhead. Further, it found that such a clause could not have been intended to be material because the restriction terminated upon a transfer of the property to a third party. Both parties appealed.

The Appellate Division affirmed, agreeing with the lower court that, where the terms of a contract are clear and unambiguous, courts must enforce those terms as written. It opined that a court cannot make a better contract for the parties than they made for themselves. However, if the contract language is ambiguous, a court must look to extrinsic evidence to ascertain the intent of the parties. Further, the Court held that where an ambiguity appears in a written instrument, the writing must be strictly construed against the draftsperson. Here, the Court found the first restriction (relating to set back distance) was unenforceable because it was not a material provision of the assignment which the parties intended to survive the closing. Moreover, it noted that the provision would not be enforceable against a third-party purchaser. In addition, construing the clause as against the assignor-draftsman, the Court ruled that it was reasonable for the lower court to conclude that the parties did not intend to be bound by this representation because the clause merely stated that the assignee was representing that it was acquiring the lot to construct a garage. It believed the facts surrounding the transaction supported the lower court’s finding that the restriction was not material to the assignor’s decision to enter the agreement. The Court also rejected the assignee’s argument that the second clause was unenforceable.

The assignee argued that its attorney-in-fact did not have authority to bind the family partnership because restrictions burdening the use of land require a specific authorization in a power of attorney, and it was not included in the power. Rejecting that argument, the Court held that the assignee, by authorizing a third party to execute the agreement, agreed to abide by all of the provisions in the agreement and authorized the person acting pursuant to the power of attorney to agree to the restrictions. Further, the Court noted that the attorney-in-fact testified that he discussed the restrictive provisions and the assignment with one of the general partners the day before the closing. Thus, the assignee was aware of the restrictions. The Court also found that the attorney-in-fact was, in this case, given a very broad power to “negotiate, sign, seal, execute, acknowledge and deliver such agreements and documents necessary… . To effect the purchase ... .” Based on the broad language of the power of attorney, and the attorney-in-fact’s conversation with the general partner, the Court concluded that the attorney-in-fact had the authority to bind the assignee. The Court agreed with the lower court that the second representation relating to set back distances merged into the deed because it was a collateral covenant that did not relate to title, possession, quantity or emblements of the land. It also found that the assignment specifically stated that all material provisions “shall survive settlement,” and the set back provisions were deemed by the Court to be a material element of the assignment.

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