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The Sandpiper Condominium Association of Mays Landing, Inc. v. Cantor, Cantor & Kean

A-5078-97T5 (N.J. Super. App. Div. 1999) (Unpublished)

CONTRACTS; INTERPRETATION; SEALS; GIFTS—Where a contract term is unambiguous, subsequent behavior is not relevant to its interpretation; a lease under “seal” implies a sixteen year statute of limitation; land accepted as a gift may be returned if there is an error in understanding about the extent of the obligation that the gift imposes on the donee.

A developer purchased a 15 acre tract containing six developed acres with 96 garden apartment units and a community building. It then converted the garden apartment complex into a condominium. It intended to retain the undeveloped land for itself, but land use complications, arising from an apparent insufficiency of sewer facilities, prevented it from obtaining the necessary subdivision. Accordingly, it conveyed the entire 15 acre tract to the condominium association and simultaneously took a lease back for the nine acre undeveloped portion. The lease was for a term of 100 years and provided that it would automatically terminate upon subdivision approval. The lease provided that as “consideration,” the developer would pay the association one dollar per year “plus the payment of a proportionate share of taxes based upon the proportion of acreage [the rear nine acres] bears to the total acreage of [the entire tract] multiplied by the assessment for land only as issued by the [municipal tax assessor].” The “proportion of acreage” equaled 58.34 percent. Notwithstanding that language, the developer made its tax payment based upon an opinion given by the local tax assessor as to the value of the rear nine acres. Using that method for nine years, the developer paid on the basis of approximately 7 percent of the total land taxes, far below the 58.34 percent that should have been paid under the formula. During those years, it donated its leasehold interest in the undeveloped land to a non-profit organization. After the initial eight years, there was a delay in making the tax payment to the condominium association and the association’s attorney, after reviewing the lease, asserted a claim against the tenant for the higher tax payment due for the entire period. The lower court found the lease terms to be clear and unambiguous and called for rent payments in the amount demanded by the association. In its oral opinion, the lower court noted that the developer consisted of sophisticated, experienced business people “who quite clearly knew what they were doing when they entered the lease.” If further noted that the developer drafted and structured the entire transaction, and that the requirement for the developer to pay a proportionate amount of the tax assessment for the entire 15 acres was entirely fair and reasonable. The tenant argued that the statute of limitations barred recovery for earlier years and also claimed laches, estoppel, and a so-called accord and satisfaction. The non-profit organization requested rescission of the gift of land and the association requested prejudgment interest (which was denied). The Appellate Division upheld the lease construction, even though the developer argued that the conduct of the parties and the pattern that existed for nine years supported a different construction of the lease language. According to the Court, however, subsequent conduct is relevant in determining the meaning of the language of a contract if there is an ambiguity in the contract. Here, the Court found no ambiguity. Also, the actions were precipitated by the tenant itself, and the pattern was put in motion by the developer at a time when it controlled the association. As to laches and estoppel, the Court rejected those defenses because the delay caused no prejudice to the tenant and, in fact, the pattern that was followed for nine years enabled the tenant, each year, to avoid the payments it should have been making. In addition, since the lower court denied prejudgment interest to the association, the tenant was provided with an otherwise unwarranted benefit. As to the estoppel defense asserted by the tenant, there was no showing that it relied on the association’s prior conduct and that it would now be inequitable to permit the association to take a position contrary to, or inconsistent with, its prior conduct. As to waiver, there was no showing that the association was aware of its right to collect higher rent or intentionally relinquished that right. Similarly, there was no accord and satisfaction because such a defense requires a clear showing that both parties intended a particular payment “to be in full satisfaction of the entire indebtedness.” At the time the payments were made, there was no question pending between the parties. While the ordinary statute of limitations is applicable to a recovery upon a contractual claim of six years, the applicable statute provided a sixteen year limitation for “[e]very action at law for rent or arrears for rent, founded upon a lease under seal… .” The lease referred more than once to its being under seal. In its signature block, it contained a provision stating that “. the parties hereto have hereunto set their hands and seals… .” It also stated that it has been “[S]igned, sealed and delivered in the presence of or attested by” a named witness. The notarization stated similarly. Although mere references to a “seal” does not transpose an ordinary document into one “under seal,” the Court held that the lease included more than mere references and, in fact, immediately to the left of the signatures of the individual parties there was a circle, seemingly hand drawn, with the name of the condominium association and the date “1991” included. That circle and the marking fell squarely within the statutory definition of a seal. It did not matter that the seal was that of the association rather than that of the tenant. According to the Restatement (Second) of Contracts, “[a]ny number of parties to the same instrument may adopt one seal.”

The non-profit organization claimed that the nominal amount of the annual payment was a critical factor in its decision to accept the gift. That claim was not disputed and the lower court’s ruling that the gift should be rescinded was upheld. With respect to the award of prejudgment interest, such an award in a contract action is a matter reserved for the discretion of a trial judge, based on equitable principles. Here, where there was a bona fide dispute that existed over the amount payable under the lease and where the association might well have discovered the error had it been more diligent at an earlier date, the Appellate Division found no reason to conclude that the lower court abused its discretion in declining to award pre-judgment interest.


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