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Simonson v. Z Cranbury Associates

June 4, 1997

EDWARD SIMONSON AND SIMONSON FAMILY ASSOCIATES, L.P., PLAINTIFFS-APPELLANTS,
v.
Z CRANBURY ASSOCIATES, LIMITED PARTNERSHIP, A DELAWARE LIMITED PARTNERSHIP, DEFENDANT-RESPONDENT.



On certification to the Superior Court, Appellate Division, whose opinion is reported at: N.J. Super. (1996).

Chief Justice Poritz and Justices Handler, Pollock, and Coleman join in the Court's majority opinion. Justice Stein filed a separate Dissenting opinion in which Justices O'hern and Garibaldi join.

SYLLABUS

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It had been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

Edward Simonson and Simonson Family Associates, L.P. v. Z Cranbury Associates, Limited Partnership

(A-36-96)

(Note: This Court wrote no full opinion in this case. Rather, the Court's affirmance of the judgment of the Appellate Division is based substantially on the reasons expressed in the per curiam opinion written below.)

Argued October 22, 1996 - Decided June 4, 1997

PER CURIAM

The issue in this appeal is whether, in a foreclosure action brought by a mortgagee on a non-recourse purchase-money mortgage, the defaulting mortgagor is entitled to enforce a release provision covering a portion of the mortgaged property.

Cranbury Associates, L.P. ("Cranbury") is the developer-mortgagor of a 249 acre farm in Cranbury, New Jersey, formerly owned by Edward Simonson. Cranbury exercised its right to purchase the subject property after having paid $180,000 in option payments to Simonson to secure the right to purchase the subject property. Cranbury paid ten percent of the total purchase price, as required by the option agreement, with a credit for the option payments already made. Cranbury's note for the remainder of the purchase price was secured by a non-recourse purchase-money mortgage in favor of Simonson.

The mortgage contained a typical developer's release entitling the borrower to a release of unspecified property from the mortgage lien on payment of release consideration under a predetermined formula. In addition thereto, the mortgage contained another release provision, which entitled the borrower to the release of 20.4 acres from the lien of the mortgage without payment of release consideration. The 20.4 acres subject to this additional release provision equates with the payments made by Cranbury towards the purchase of the entire property.

Cranbury defaulted on the note, and Simonson brought suit to recover the property. Cranbury counter-claimed for the release of 20.4 acres of the property pursuant to the additional release provision. The Chancery Division granted Simonson's motion for summary judgment, but held that Cranbury was entitled to the value of 20.4 acres of the property.

The Appellate Division affirmed the judgment of the Chancery Division in an unreported decision, rejecting Simonson's argument that the absence of default was a condition precedent to Cranbury's exercise of the release provision, as well as its argument that an approved subdivision or development plan was a condition precedent to the exercise of the release provision.

The Supreme Court granted Simonson's petition for certification.

HELD: The judgment of the Appellate Division is affirmed substantially for the reasons expressed in the opinion below. The mortgage agreement evidences the parties' intention that Cranbury acquired the right to obtain the release at any time of 20.4 acres from the lien of the mortgage given to Simonson, and to condition that right would have defeated the probable intention of the parties that Cranbury should recover property equal to its initial investment.

JUSTICE STEIN wrote a separate Dissenting opinion in which JUSTICES O'HERN and GARIBALDI join. Justice Stein considered the record uninformative and ambiguous concerning the question whether the parties had intended that the right to release of the property would survive a default in the note secured by the mortgage. Rather, he viewed the purpose of the provision for the 20.4 acre release as nothing more than a mechanism to facilitate the mortgagor's development of the subdivision, which should not be enforced because the mortgagor's default prevents the performance of the very obligation in consideration for which the release was granted. Justice Stein considered the Court's misperception of the purpose of the release clause to result in a totally unjustified windfall for the mortgagor.

CHIEF JUSTICE PORITZ and JUSTICES HANDLER, POLLOCK, and COLEMAN join in the Court's majority opinion. JUSTICE STEIN filed a separate Dissenting opinion in which JUSTICES O'HERN and GARIBALDI join.

PER CURIAM

The issue on this appeal is whether, in a foreclosure action brought by a mortgagee on a non-recourse purchase-money mortgage, the defaulting mortgagor is entitled to enforce a release provision covering a portion of the mortgaged property.

The subject property is a 249 acre farm in Cranbury, New Jersey. After the developer-mortgagor, Cranbury Associates, L.P. (Cranbury), had paid $180,000 in option payments to secure the right to purchase the property, owned by mortgagee Edward Simonson (Simonson), *fn1 Cranbury exercised its right to purchase the property. Cranbury paid ten percent of the $6,723,891 purchase price, as required by the option agreement, with a credit for the $180,000 in option payments previously made. Thus, Cranbury paid $490,000, bringing its total investment in the property up to $670,000. Cranbury's note for the remainder of the purchase price was secured by a non-recourse purchase-money mortgage in favor of Simonson.

The mortgage contained the typical developer's release provision:

3.A. Releases from the lien of this Mortgage shall be obtained for the number of acres of property for which a release from the lien of this Mortgage is sought upon payment of a sum equal to the product of the following formula:

(Number of acres sought to be released) x (1.25) x ($27,000/acre)

The mortgage also contained an additional release provision:

Notwithstanding the foregoing, at any time upon Borrower's request, from and after the date hereof Borrower shall be entitled to the release from the lien of this Mortgage of 20.4 acres without payment of release consideration . . . .

The 20.4 acres subject to this additional release provision equates with the $670,000 in payments made by Cranbury towards the purchase of the entire property.

Cranbury defaulted on the note, and Simonson brought suit to recover the property in November 1990. Cranbury counter-claimed for the release of 20.4 acres of the property pursuant to the additional release provision. The Chancery Division granted Simonson's motion for summary judgment, but held that Cranbury was entitled to the value of 20.4 acres of the property.

The Appellate Division affirmed the judgment of the Chancery Division. N.J. Super. (1997). The court rejected Simonson's argument that the absence of default was a condition precedent to Cranbury's exercise of the release provision. The court also rejected Simonson's argument that an approved subdivision or development plan was a condition precedent to the exercise of the release provision.

We granted Simonson's petition for certification, 144 N.J. 379 (1996), and affirm substantially for the reasons set forth in the Appellate Division opinion. We add only the following comments in light of the Dissent.

As noted by the Appellate Division, and implicitly recognized by the Dissent, the interpretation of the release provision at issue in this case is dependent primarily on the intent of the parties. Krosnowski v. Krosnowski, 22 N.J. 376, 386, 126 A.2d 182 (1956). The general purpose of the agreement must guide a court's interpretation of its particular terms. Id. at 387.

The Appellate Division properly understood that the particular release provision at issue in this litigation was intended to assure the mortgagor some return on its investment of approximately $700,000 toward the purchase of the $6.7 million farm. N.J. Super. at . As noted above, there are actually two release provisions in the mortgage: the typical developer's release provision, and the additional release provision pertaining to the 20.4 acres. Typical release provisions usually are intended to permit the developer to obtain releases for specific parcels of mortgaged property, so that the developer-mortgagor may transfer clean title to the ultimate purchasers and so that the developer-mortgagor can generate revenues to fund the continuing development of the property. The provision pertaining to the 20.4 acres, however, does not contemplate a developed parcel to be sold as part of the development; on the contrary, it is intended to address a different and relatively unique situation.

The Dissent erroneously fails to distinguish between the two release provisions contained in the agreement, and analyzes the relevant, contested release provision as if it were the more typical developer's release provision. Post at - (slip op. at 8-22). The Dissent correctly perceives that continued development of the remainder of the tract subject to the mortgage is part of the consideration for the typical developer's release provision. Post at (slip op. at 18). In respect of that type of provision, a defaulting ...


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