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K. Woodmere Associates, L.P. v. Menk Corp.

316 N.J. Super. 306, 720 A.2d 386 (App. Div. 1998)

MUNICIPALITIES; DEVELOPERS—The transfer of property by a quitclaim deed does not automatically transfer the grantor-developer’s interest in municipal performance bonds to its grantee.

In connection with the construction of two projects, related developers posted cash performance bonds with a municipality and a municipal utility authority. When the projects ran into financial trouble, the developers filed for protection under the Bankruptcy Code. Subsequently, with the approval of the Bankruptcy Court, the properties were transferred by quitclaim deed in “as-is” condition to the mortgagee of both properties. No reference was made to the ownership of the cash performance bonds in the deed or in any other related document. The properties were then conveyed several times by quitclaim deed in “as-is” condition until the final grantee claimed that the bonds belonged to it because they were transferred incident to the property transfers. The lower court ruled performance guarantees follow the land and that, subject to the requirements of the municipality and the municipal utility authority, they had become the property of the ultimate grantee. The Appellate Division disagreed. In its view, the original developers did not expressly or implicitly relinquish their claims to the cash performance bond monies when they deeded their interest in the properties. A valid assignment must contain evidence of the intent to transfer one’s rights, and “the subject matter of the assignment must be described sufficiently to make it capable of being readily identified.” The record showed that no mention of the cash performance bond monies had been made during the negotiation between the original developer and its lender. In fact, the performance bond monies were disclosed in the bankruptcy proceeding and were part of the bankruptcy estate. Examination of the documents and the surrounding circumstances failed to reveal any evidence of an intent to transfer the bonds. In the Court’s view, in the absence of some evidence of an intent to transfer the cash performance bonds, the grantee’s claim was without merit. Even though the quitclaim deed transferred whatever interest the original developers had to the title, or ownership, of the real property and any improvements, the bonds were not encompassed within that transfer. When the grantees insisted that the “as-is” language in the original agreement with the bank evidenced an intent to disclaim all rights and interests associated with the land, including the cash performance bonds, the Court replied that the grantee’s reliance on the definition of “as-is” in the Uniform Commercial Code relating to the exclusion of implied warranties applied to the sale of goods, not to the transfer of title to real property. As a consequence, the Appellate Division ruled that when the required improvements were completed to the satisfaction of the municipality and the utility authority, any refunding of the cash performance bonds must be to the original developer.


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