Simonson v. Z Cranbury Associates

140 N.J. 536, 695 A.2d 222 (1997)
  • Opinion Date: June 4, 1997

MORTGAGES —An unusually written mortgage gave the borrower the right to get a partial release merely upon demand. Demand was made after default and after commencement of the resulting foreclosure action. Lender was required to give the release because non-default was not a precondition and because of the unusual equities in the transaction.

A developer purchased land and executed a mortgage in favor of its seller. The mortgage contained a provision entitling the developer to release of 20 acres from the mortgage lien in exchange for numerous payments made over the years prior to the mortgage. The developer later defaulted on the mortgage and seller brought suit to recover the entire property. The developer counter-claimed for release of the 20 acres. The Appellate Division affirmed the lower court’s decision to permit developer to retain the 20 acres, rejecting the seller’s argument that the absence of default was a condition precedent to the enforceability of the release provision. Seller appealed.

The New Jersey Supreme Court affirmed the Appellate Court judgment, holding that the mortgage agreement evidenced the intention that the developer had the right to get a release of the 20 acres at any time, without regard to the status of the mortgage. Even though the release provision had not yet been exercised, the intent of the parties was to protect those 20 acres from the mortgage requirements because the developer had paid for that land prior to the mortgage. Accordingly, there were no additional requirements to be satisfied in exchange for release of the 20 acres. While the typical developer’s release provision in a mortgage would not be enforceable in the event of default, the Court found the provision at issue to be relatively unique and that it was intended as assurance to the developer of some return on its investment prior to the mortgage. As such, continued development of the property, subdivision approval, and absence of default were not relevant. In short, the developer’s right of release had accrued prior to default on the mortgage. Had there been an intent to condition release of the 20 acres on further compliance with the mortgage, the document should have said so.