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Davidson Bros., Inc. v. D. Katz & Sons

Decided: June 23, 1994.


On appeal from Superior Court of New Jersey, Law Division, Middlesex County.

Before Judges Gaulkin, D'Annunzio and Wallace


The opinion of the court was delivered by D'ANNUNZIO, J.A.D.

Plaintiff Davidson Bros., Inc. (Davidson) appeals from a trial court judgment entered after a bench trial held on remand from the Supreme Court. Davidson Bros., Inc. v. D. Katz & Sons, Inc., 121 N.J. 196, 579 A.2d 288 (1990). Applying the reasonableness test formulated by the Supreme Court, the trial court determined that a covenant prohibiting the use as a supermarket of a property in downtown New Brunswick, New Jersey, was unenforceable. We now affirm.

Davidson operated a number of supermarkets in New Jersey. In 1952, it opened a supermarket of 10,000 square feet on George Street in downtown New Brunswick. In June 1978, Davidson took over an existing supermarket located at Elizabeth Street, also in

New Brunswick but approximately two miles from the George Street store (hereinafter George Street), near the border with North Brunswick. Davidson paid $315,000 for the assets of the Elizabeth Street store (hereinafter Elizabeth Street), not including inventory, and made a substantial additional investment for improvements. Davidson leased the Elizabeth Street real property.

Davidson closed George Street in February 1979 because its volume had decreased after Davidson acquired Elizabeth Street. It sold George Street in September 1980 to defendant D. Katz & Sons, Inc. (Katz), a rug merchant. The deed to Katz contained the covenant in issue:

The lands and premises described herein and conveyed hereby are conveyed subject to the restriction that said lands and premises shall not be used as and for a supermarket or grocery store of a supermarket type, however designated, for a period of forty (40) years from the date of this deed. This restriction shall be a covenant attached to and running with the lands.

The closing of George Street as a supermarket created a hardship for downtown residents, most of whom did not own or have ready access to motor vehicles. In response to their plight, the city government sought to attract another supermarket operator to the downtown area. The city's efforts culminated in the acquisition of George Street from Katz by the defendant New Brunswick Housing Authority, and the leasing of the property, for one dollar a year, to defendant C-Town, on condition that C-Town invest at least $10,000 for improvements and operate George Street as a supermarket.

Davidson commenced this action to enforce the covenant. Davidson appealed from an adverse summary judgment and we affirmed in an unreported opinion, utilizing traditional "touch and concern" analysis applicable to covenants alleged to run with the land. Davidson Bros., Inc. v. D. Katz & Sons, Inc., No. A-5489-86 (App. Div. Sept. 15, 1988). See generally Caullett v. Stanley Stilwell & Sons, Inc., 67 N.J. Super. 111, 116-18, 170 A.2d 52 (App. Div. 1961).

Our Supreme Court granted Davidson's petition for certification and reversed and remanded for a trial. In doing so, the Court

determined that "rigid adherence" to the "touch and concern" requirement was no longer warranted. Davidson Bros. Inc., supra, 121 N.J. at 210. It held that enforceability of a covenant would depend on its reasonableness, and that the principle of "touch and concern" is "but one of the factors." Ibid. The Court then described eight factors to be considered in resolving the reasonableness issue:

1. The intention of the parties when the covenant was executed, and whether the parties had a viable purpose which did not at the time interfere with existing commercial laws, such as antitrust laws, or public policy.

2. Whether the covenant had an impact on the considerations exchanged when the covenant was originally executed. This may provide a measure of the value to the parties of the covenant at the time.

3. Whether the covenant clearly and expressly sets forth the restrictions.

4. Whether the covenant was in writing, recorded, and if so, whether the subsequent grantee had actual notice of the covenant.

5. Whether the covenant is reasonable concerning area, time or duration. Covenants that extend for perpetuity or beyond the terms of a lease may often be unreasonable. Alexander's v. Arnold Constable, 105 N.J. Super. 14, 27, 250 A.2d 792 (Ch. Div. 1969); Cragmere Holding Corp. v. Socony Mobile Oil Co., 65 N.J. Super. 322, 167 A.2d 825 (App. Div. 1961).

6. Whether the covenant imposes an unreasonable restraint on trade or secures a monopoly for the covenantor. This may be the case in areas where there is limited space available to conduct certain business activities and a covenant not to compete burdens all or most available locales to prevent them from competing in such an activity. Doo v. Packwood, 265 Cal. App.2d 752, 71 Cal. Rptr. 477 (1968); Kettle River R. v. Eastern Ry. Co., 41 Minn. 461, 43 N.W. 469 (1889).

7. Whether the covenant interferes with the public interest. Natural Prods. Co. v. Dolese & Shepard Co., 309 Ill. 230, 140 N.E. 840 (1923).

8. Whether, even if the covenant was reasonable at the time it was executed, "changed circumstances" now make the covenant unreasonable. Welitoff v. ...

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