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Eric-Richard Company, LLC v. Hillsborough Associates

A-339-02T5 (N.J. Super. App. Div. 2003) (Unpublished)

RESTRICTIVE COVENANTS; INTERPRETATION—The words “and” and “or” can mean the same thing in the context of a restrictive covenant and the ambiguity can be resolved by introduction of extrinsic evidence.

A property owner owned two lots. It leased one lot to a motel. That lease contained a restrictive covenant “prohibiting the landlord from leasing contiguous property to another tenant engaged in the business of a ‘motel, restaurant and cocktail lounge.’” When the property owner sought to lease the other parcel to a bakery/restaurant, the motel refused to consent. The property owner then sought a declaratory judgment that such a new lease would not violate the restrictive covenant in the motel’s lease. At an earlier time, the motel consented to a lease of the adjacent property for the operation of a family style pizza restaurant. In exchange for that consent, the property owner promised additional land and parking to the motel. Later, the motel consented to the operation of a small restaurant within a large department store to be constructed on the adjoining property. Even with that history, the motel refused to consent to “a bakery and coffee shop, offering freshly baked bread, pastries, coffee and juices to the general public.”

The lower court agreed with the property owner’s contention that the restriction only prohibited “the operation of both a motel and restaurant/cocktail lounge business.” It felt that the lease language was abundantly clear and that the proposed restaurant was not a motel. It also found no reason to talk about what would happen if the restaurant turned into a motel. The motel appealed, arguing that the term “and” may be read “disjunctively” and therefore summary judgment in favor of the property owner should not have been granted. Instead, it argued that “extrinsic evidence, not just the words of the doctrine, should be examined.”

The Appellate Division agreed. “Whether a term is clear or ambiguous is matter of law for the court to determine.” On the one hand, a “court should not torture the language of [a contract] to create an ambiguity. ... On the other hand, ‘experience teaches that language is so poor an instrument for communication or expression of intent that ordinarily all surrounding circumstances and conditions must be examined before there is any trustworthy assurance of derivation of contractual intent… .”

More importantly, the Court cited case law to the effect that “[i]t is a cardinal rule in the construction of contracts and statutes that the conjunctions ‘and’ and ‘or’ are frequently used interchangeably. ... Ordinarily, the word ‘and’ is conjunctive, whereas the term ‘or’ is disjunctive. ... However, the word ‘and’ should be read as ‘or’ when a reasonable person in the position of the parties would so understand it.” With that as background, the Court felt that interpretation of the phrase “motel, restaurant and cocktail lounge” was not “free from doubt and therefore the parties should be allowed to offer extrinsic evidence to demonstrate the meaning of the restrictive covenant.” The motel owner responded that even if the term “and” was found to be ambiguous, the restriction on the use of its property should have been strictly construed. The Court rejected that argument stating that the “principle of strict construction does not act as a bar to prevent defendant from even introducing its extrinsic evidence.”

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