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The Fonseca Group, Inc. v. Bay Avenue Holding Corp.

A-1821-97T5 (N.J. Super. App. Div. 1998) (Unpublished)

CONTRACTS—If a settlement agreement to convey property does not condition its effectiveness on the grantor’s receipt of a release, then when the grantor delivers the deed, the deed becomes effective even in the absence of the release.

A commercial mortgage loan went into default and the bank sought foreclosure of the mortgaged property as well as a monetary recovery from the borrower and a guarantor. The lender obtained a default judgment of foreclosure and also a default foreclosure against related personal property. The borrower and guarantor twice unsuccessfully tried to have the default judgments vacated. The lender then conveyed the mortgaged property and certain other personal property to a developer. In the interim, the borrower and guarantor appealed from the order denying their motion to vacate the default judgment. Before the appeal was decided, a settlement was reached among the lender, the borrower, and the guarantor. Pursuant to the settlement, the lender was to receive money and a quitclaim deed as well as a general release executed by the borrower and guarantor. The release stated that the lender and its successors and assigns were released from a laundry list of items, including “trespass [and] damages.” The lender, however, did not deliver its general release to the borrower and guarantor because it had not received proof that the borrower and guarantor had paid taxes on the transferred property. In addition, the lender did not record the deed.

The developer then sued the bank, alleging that it was in breach of its agreement to convey the lots free and clear of encumbrances. In turn, the lender sued the borrower and guarantor alleging that they had breached the settlement agreement by failing to timely convey the lots free and clear of all liens. In response, the borrower and guarantor filed a forth-party complaint against the developer for trespass.

The borrower and guarantor did not fare well before the lower court. The Appellate Division was equally unsympathetic. In the view of each Court, the settlement agreement did not condition the conveyance of the property by the borrower to the lender upon receipt of the general release. Specifically, the agreement provided that the lender would deliver a release upon payment of the money and upon performance of all the other terms of the agreement. One of those terms was that the lots be transferred “free and clear of all liens and encumbrances.” Because the property was not free of all liens and encumbrances, the bank properly held the release in escrow until the borrower and guarantor paid the outstanding real estate taxes. The agreement contained no provision that predicated the validity of the deed upon delivery of the bank’s release from escrow. Thus, the fact that the release was held in escrow did not affect the validity of the title transfer from the borrower to the bank. Furthermore, the general release expressly discharged the lender and its successors and assigns from any claims resulting from trespass or damages.


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