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Norwood-Jeb, L.L.C. v. North River Mews Associates, L.L.C.

A-1259-07T3 (N.J. Super. App. Div. 2009) (Unpublished)

DEEDS; MERGERS — It is illogical for a court to conclude that a deed restriction has failed to survive closing when the deed restriction did not actually exist until the deed itself was prepared.

A developer agreed to purchase an eighteen acre parcel to build a planned unit residential development. A municipal ordinance required that a portion of the development had to be used for age-restricted, independent senior citizen housing units. The purchase contract provided that these units would be used as rental units only and would not be sold to the residents. At closing, the developer accepted an agreed-upon deed restriction stating that, for a five-year period, if residential units were sold, an additional payment would be due to the seller.

The president of the developer guaranteed every obligation of the purchaser in this transaction, including the obligations contained in the deed restriction. The developer then conveyed its interest in the property to a third party of which the developer’s president was the managing member. The president then unsuccessfully sought to be released from his guaranty in exchange for a lump sum payment. At the prompting of the new owner, the municipality amended its ordinance to permit the sale of individual units within the tract and approved a modified site plan application. One week before the deed restriction expired, the new owner sold the portion of the property that had been designated for independent senior housing to another developer. The seller certified that the deed restrictions had not been violated during the five year period and it agreed to indemnify and hold the title company and the purchaser harmless from any claims arising from a violation of this representation. The original owner wrote to its buyer, now the seller, demanding payment of the additional purchase price because of the sale had taken place within the five-year restricted period. Shortly afterward, the original owner sued the seller.

The lower court ruled that the restriction against sale of individual residential units in the deed was invalid because it was not in the contract of sale. The lower court also held that the restriction was unenforceable because the contract required all modifications to be in writing and signed by the parties. Further, the lower court found, even if the provision had survived closing and was properly part of the deed, no qualifying ownership event had occurred to trigger the enhanced purchase price. It also found that the seller’s president was personally liable under his guaranty. As to the new owners, the lower court ruled that there was no violation of the deed restrictions, because the restrictions were invalid. The original owner appealed.

As to the claims against the successor to the developer, the Appellate Division noted that the original contract of sale, the deed, and the guaranty had to be read together to determine the intent of the parties. After doing so, the Court disagreed with the lower court’s finding that the deed restriction was unenforceable. Although the lower court held that the contract prohibited unwritten and unsigned modifications, the Appellate Division ruled that parties can, orally or by their conduct, agree to modify such a provision if the intent of the parties is to modify the contract. It found that a jury was needed to resolve the question of whether the developer’s acceptance of the deed with the expansive deed restrictions represented a modification of the contract of sale.

The Court also believed that the lower court incorrectly relied on the doctrine of merger by deed to find that the deed restriction was not included in the contract of sale. If ruled that it was illogical to conclude that the deed restriction failed to survive the closing when it did not exist until the deed itself was prepared. The Court also opined that the question of whether the passage of a planning board resolution approving a modified site plan was an “ownership event” for the purposes of the deed restriction was to be resolved by a jury. Thus, it remanded this matter to the lower court. The Court did note, however, that if the board had not approved the modified site plan application, individual vesting would not have been possible.

As to the guaranty, the Court held that the guarantor’s attempts to be released from the restrictions in exchange for the payment of money could have meant that: (a) he believed his efforts to market the property for condominiums put the developer in jeopardy of potentially violating the deed restrictions; or (b) he was attempting to avoid the cost of litigation. It opined that because there was a question of fact as to whether the developer breached the contract, the issue of whether the guarantor was liable under the guaranty was also a question of fact to be remanded to a jury. As to the original owner’s claim against the current owners of the property, the Court held that they were not a party to the original contract of sale and could not be held liable for its breach. Further, it ruled that the record was devoid of any evidence showing that the current owner acted with malice toward the original owner when it entered into a contract to purchase the property from the developer. Thus, the Court believed that the current owner could not be considered to have tortiously interfered with the original owner’s contract.

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