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Mercer County Improvement Authority v. Trenton Studios


August 21, 2008


On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-848-06.

Per curiam.


Argued: October 11, 2007

Before Judges Cuff, Lisa and Lihotz.

This is an action on a note and an action for breach of a redevelopment agreement. The property was acquired from plaintiff Mercer County Improvement Authority (MCIA), is situated in a redevelopment area, and is subject to numerous conditions calculated to foster redevelopment goals. When defendant Trenton Studios, Inc. (TSI), the property owner, breached its obligations, including failure to pay principal and interest when due and failure to commence construction of designated improvements, MCIA commenced a foreclosure action and a separate breach of contract action. TSI appeals from an order entered in the breach of contract action enforcing the reversion provision of the Redevelopment Agreement between TSI and MCIA. TSI contends that the reversion provision of the Redevelopment Agreement clogs or obstructs the equity of redemption. The trial judge held that the rights TSI had under the mortgage agreement did not prevent MCIA from seeking the remedies it was entitled to under the Redevelopment Agreement, particularly given the strong public interest underlying the redevelopment. We affirm.

The City of Trenton (the City) adopted a redevelopment plan, commonly known as the Roebling Complex Redevelopment Plan (Redevelopment Plan). This Redevelopment Plan included Block 135, Lots 1, 68, and 70, commonly known as 27-21 Clark Street, 10 Elmer Street and Clark Street, or sometimes referred to as 500 East Canal Street in the City (the Property). On December 17, 2002, MCIA adopted Resolution No. 02-128 authorizing the MCIA chairman to enter into an agreement with the County of Mercer, the City, and TSI for the purpose of construction of a movie production facility (the Project) on the Property. In order to effectuate its Redevelopment Plan and the Project, MCIA and TSI entered into several agreements: an Agreement of Sale, a Promissory Note (the Note), a Mortgage and Security Agreement (the Mortgage), a Redevelopment Agreement, and a First Amendment to the Agreement of Sale (the First Amendment).

The Agreement of Sale was executed on December 17, 2002, under which MCIA was to acquire the Property from the City and then sell it to TSI. The purchase price was $2,500,000 with $25,000 to be paid at the execution of the Agreement of Sale, $25,000 to be paid at the closing, and $2,450,000 to be financed by the Note and Mortgage. The Agreement of Sale states that the financing shall be evidenced by the Note, the Mortgage, and the UCC-1 Financing Statements. The Note and the Mortgage were attached as schedules to the Agreement of Sale. More specifically, the Agreement of Sale provides that the financing was to be evidence by the Mortgage "in the principal amount . . . securing the Property, incorporating a security agreement in all fixtures of Borrower located on the Property as of Closing . . . and [TSI's] Redevelopment Rights to the Property."

The Agreement of Sale was contingent upon a number of obligations of both plaintiff and defendant. One of these contingencies was execution of a satisfactory redevelopment agreement within forty-five days from the date of the Agreement of Sale. Failure to do so provided either party with the right to terminate the agreement. With regard to the redevelopment aspect of the Project, the Agreement of Sale states:

2. In accordance with the Redevelopment Plan, [TSI] desires to purchase the Property in order to renovate existing buildings on the Property, construct new facilities on the site, and to provide a location for business operations. It is [TSI's] obligation to redevelop and use the Property in accordance with the Redevelopment Plan set forth in Paragraph 6 herein and in accordance with the project description attached hereto as Schedule D . . . .

MCIA was to act as TSI's redevelopment agent until TSI received final approval to construct any portion of improvements for the Project or three years from the date of closing of title, whichever came first. As redevelopment agent, MCIA was to assist TSI "with any development application for the Property submitted to any board or agency of the City of Trenton or County of Mercer." Additionally, MCIA represented and warranted that TSI's proposed business for the Property was an allowable use pursuant to the Redevelopment Plan.

The Agreement of Sale required MCIA to deliver title to and possession of the Property to TSI. Title to the Property was subject to the regulations and conditions of the Redevelopment Plan.

The Note, dated May 28, 2003, is for a principal amount of $2,450,000. Under the Note, MCIA is the Lender and TSI is the Borrower. TSI was obliged to make interest payments only from July 1, 2003 to June 31, 2005, payable quarterly on the first of April, July, October, and January. On July 1, 2005, quarterly payments of principal and accrued interest began in the amount necessary to amortize the principal balance in equal payments over a thirty-year term. The Note was to mature on July 1, 2009, at which time the entire principal balance, accrued interest and all other sums due and payable under the Note would be payable. A late fee of five percent of the overdue amount would be assessed if the payment was more than fifteen days past its due date.

The Note states that the following occurrences or acts constitute an event of default:

(a) The failure by Borrower to pay all or any part of: (i) any installment of principal or interest, (ii) any other amount coming due under this Promissory Note, or (iii) the principal balance on this Promissory Note, within thirty (30) days of when due; (b) The occurrence of an "Event of Default" under any of the Loan Documents (as same is defined hereafter) between Borrower and Lender . . . .

The Note defines the term "Loan Documents" to include: (i) the Note, (ii) the Mortgage, (iii) the Agreement of Sale, (iv) the Redevelopment Agreement; and (v) the First Amendment.

In an event of default, MCIA could, at its option, demand payment of the entire outstanding principal amount, all accrued unpaid interest, any other sums due, and costs of enforcement. The Note further provides:

No failure or delay on the part of the Lender in exercising any right, power or privilege under this Note and no course of dealing between Borrower and Lender shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise of any right, power or privilege Lender would otherwise have. No notice to, or demand on, Borrower in any case shall entitle Borrower to any or further notice or demand in similar or other circumstances or constitute a waiver of the right of Lender to any other or further action in any circumstances without notice or demand.

The Note was secured by the Mortgage pursuant to which MCIA was given a mortgage security interest in the Property. The Mortgage was signed on the same day as the Note, and MCIA was the Lender and TSI was the Mortgagor. The Mortgage provides that TSI is to pay the indebtedness in accordance with the terms of the Note and "shall comply with the terms and provisions of the Note and all documents evidencing or securing the Loan, or executed in connection with the Loan (collectively, the 'Loan Documents')." This was the most specific definition of Loan Documents within the Mortgage. Throughout the Mortgage, the Loan Documents are referred to separately from the Note, the Agreement of Sale, the First Amendment, the Redevelopment Agreement and the Mortgage. The Mortgage notes that TSI shall be entitled to proceed with all work, construction and property modifications and improvements as set forth in and contemplated by the Agreement of Sale, the First Amendment, and the Redevelopment Agreement.

In section 14 of the Mortgage, the following events are listed as events of default:

(a) The Mortgagor shall default in the payment of any principal, interest or any other amount when due hereunder or under the Note or other Loan Documents;

(b) The Mortgagor shall default in the performance of any of the terms, covenants, conditions or undertakings contained in the Note, this Mortgage or the Loan Documents or an Event of Default as defined in the Loan Documents shall occur;

(c) The Mortgagor shall default in the performance of any of the terms, covenants, conditions or undertakings contained in the Redevelopment Agreement, or an Event of Default as defined in the Redevelopment Agreement shall occur;

(g) The default of the Mortgagor under any other obligation owed to the Lender, or any third party, now existing or hereafter arising;

(i) In the event that proceedings shall have been instituted for foreclosure or collection of any mortgage, judgment, or lien affecting the Property or a default shall occur under any mortgage which is a lien upon the Property;

If an event of default remains uncured for thirty days after notification of such event, MCIA has the following remedies pursuant to section 15 of the Mortgage:

(1) Declare the Loan immediately due and payable . . . together with any and all other sums owing to the Lender pursuant to the Note, Mortgage and Loan Documents;

(2) Recover judgment against the Mortgagor for the indebtedness outstanding; and neither the recovery of judgment nor the levy of execution on the Property, shall affect the Lender's rights hereunder or the lien hereof;

(3) Enter upon and take possession of the Property, or have a receiver of the rents, issues and profits thereof appointed . . .

(4) Take such other action to protect and enforce the Lender's rights hereunder and the lien hereof, as the Lender deems advisable, including:

(a) The foreclosure hereof and, in any proceeding to enforce any liability for the Loan, the Mortgagor shall not assert, as a defense, that the Lender failed to foreclose any such rights or that any such rights adversely affected the value of the Property;

(b) The sale of the Property, in a foreclosure proceeding . . . ;

(c) The exercise by the Lender of all rights under the Loan Documents; . . . .

The Mortgage states that the rights and remedies of MCIA listed in the Mortgage are "in addition to every other right and remedy now and hereafter provided by law." The Mortgage also states that all of the terms and conditions of the Note, the Loan Documents and the Redevelopment Agreement are incorporated in the Mortgage by reference and that the Loan Documents, the Redevelopment Agreement, and the Agreement of Sale contain the entire agreement between TSI and MCIA in connection with the loan.

The Redevelopment Agreement was also executed on the same day as the Note and the Mortgage. Under the Redevelopment Agreement, MCIA is the Authority, MCIA and the City are collectively referred to as the Redevelopment Entity, and TSI is the Redeveloper. The Redevelopment Agreement notes that the agreement's purpose and authorization are pursuant to the County Improvement Authorities Law (CIAL), N.J.S.A. 40:37A-44 to -135, and the Local Redevelopment and Housing Law (LRHL), N.J.S.A. 40A:12A-1 to -73.

The Redevelopment Agreement provides that TSI agreed to undertake the Project "for redevelopment of the Property for the uses specified in the Redevelopment Plan and in accordance with [the Redevelopment] Agreement, pursuant to [the] Agreement of Sale . . . and the First Amendment." Pursuant to the Redevelopment Agreement, TSI was to proceed according to the attached development schedule. The first deadline was six months after the closing, when engineering, field work, architectural and site and building plans were due. Three months later, it was expected that government approvals would be in hand. Phase 1 of the Project was to commence approximately two months after receipt of any governmental approvals or the approval of the Redevelopment Plan Amendments, whichever was later.

If TSI, despite the use of its reasonable best efforts, could not complete any phase of the Project by its development schedule date, it could request an extension. MCIA could extend the completion date in its sole discretion, but consent for such an extension was not to be unreasonably withheld. The Redevelopment Agreement provides that the periods specified in the development schedule are "good faith estimates," but TSI was still expected to proceed in good faith and with due diligence.

Article 9 of the Redevelopment Agreement describes the circumstances under which TSI would be considered in default of its obligations under the Redevelopment Agreement "and/or the Mortgage." The events of default include the following:

(a) The Redeveloper shall fail to begin construction of the Project or any phase thereof by the date(s) set forth in this Agreement, and shall fail to begin construction when required by the Development Schedule, and thereafter within three (3) months after written demand by the Redevelopment Entity;

(b) The Redeveloper shall abandon or substantially suspend construction work, and shall not thereafter resume construction within one (1) month after written demand by the Redevelopment Entity; or

(c) The Redeveloper shall fail to complete construction of the Project or any phase thereof by the date(s) set forth in the Development Schedule, and shall thereafter fail to complete construction within six (6) months after written demand by the Redevelopment Entity; or In the event of a default as described in Article 9, Article 10 provides that MCIA "shall have the right to re-enter and take possession of all Property and to terminate and revest in the Redevelopment Entity any property or interest in any property conveyed by it to the Redeveloper." The Redevelopment Agreement further provides:

It is of the essence of this Agreement that the conveyance of the Property to the Redeveloper is subject to the condition that in the event of any default by the Redeveloper . . . the Redevelopment Entity, at its option, may declare a termination in favor of the Redevelopment Entity of the title and of all the rights and interests in and to the Property conveyed by the Deed to the Redeveloper, and that such title, with all rights and interests of the Redeveloper, and any assigns or successors in interest, along with any improvements constructed by the Redeveloper on the Property, shall revert to the Redevelopment Entity, and that this condition be embodied as well in the Deed.

In addition, the reversion of title in MCIA would be "subject to and limited by, and shall not cause a default under, render invalid, or limit in any way, the lien of any mortgage authorized by this agreement or the Agreement of Sale." The Redevelopment Agreement limits the Project's Mortgage financing to Section 3 of the First Amendment, unless TSI obtains MCIA's permission.

If TSI fails to perform and cure within sixty days any of its respective obligations under the Redevelopment Agreement after receiving written notice of such default, then the Redevelopment Agreement and any of TSI's rights arising from it would be terminated. Article 17 addresses additional remedies available to MCIA. These remedies include the parties' right to institute actions or proceedings as they deem desirable in order to effectuate the purpose of the Redevelopment Agreement. Any delay to institute or prosecute any remedial rights would not operate as a waiver since it was the intent of this provision that the party should not be constrained to exercise such remedy at a time when it may still hope otherwise to resolve the problems caused by the default involved; nor shall any waiver in fact made by any party with respect to a specific default under this Agreement be considered or treated as a waiver of rights of that party with respect to any other defaults by that party under this Section or with respect to the particular default except to the extent specifically waived in writing.

The remedies article of the Redevelopment Agreement also states:

17.04 Rights and Remedies Cumulative. The rights and remedies of the parties to this Agreement, whether provided by law or by the Agreement, shall be cumulative, and the exercise by either party of any one or more of such remedies shall not preclude the exercise by it, at the same or different times, of any other such remedies for the same default or breach, or of any of its remedies for any other default or breach by the other party.

According to the Redevelopment Agreement, the agreement constitutes the entire agreement between the parties and supersedes all prior oral and written agreements except as otherwise provided therein.

The deed was dated May 28, 2003. It provides that the Property was only to be used for the purposes specified in the Redevelopment Plan for a period of forty years. The deed also specifies that the Property was conveyed subject to the provisions of the Redevelopment Agreement and that in the event of a default by TSI, the Property would revert to MCIA.

On July 1, 2005, TSI sent MCIA its first payment of principal and accrued interest of $100,689.43, which represented TSI's good faith estimate of the amount owed to MCIA in connection with the Note and Mortgage. The payment equaled the $150,000 payment in accordance with the Note minus an estimated credit of $58,865 for the income MCIA was supposed to receive from the rental of cellular towers located on the Property. On November 1, 2005, MCIA sent TSI a letter notifying it that its payment was overdue and the amount due totaled $78,908.38, which consisted of a previous balance, the October 1, 2005 payment, and a five percent late charge. The letter stated that TSI was in default and it would invoke its rights under Section 7 of the note and require immediate payment of the entire outstanding principal amount of the Note with unpaid interest and other sums due if defendant failed to pay the amount due.

On December 12, 2005, MCIA notified TSI that it had defaulted under the Note due to its failure to make the October 1, 2005 payment. The letter stated that an event of default had occurred under the Mortgage and failure to cure within the time provided by the Mortgage would result in MCIA employing any and all remedies available to it under the Note and the Mortgage, including repossession of the property. Another letter was sent on March 2, 2006, which notified TSI that it had also defaulted under the Redevelopment Agreement because, among other things, it had failed to begin construction of the renovations and improvements contemplated by the Redevelopment Agreement in the time allotted. The letter advised that if the default remained uncured, MCIA would pursue all available legal and equitable remedies against TSI, including those set forth in Article 10 of the Redevelopment Agreement.

MCIA filed a mortgage foreclosure action on March 13, 2006. Judge Shuster found that TSI admitted default, and that any dispute concerning the Redevelopment Agreement was not germane to the foreclosure action. Consequently, he struck TSI's answer, granted summary judgment, and transferred the matter to the foreclosure unit for entry of final judgment. He held, however, that TSI retained the right to redeem in the foreclosure action. The judge did not preclude MCIA from pursuing its reversion of title remedy in the Law Division action.*fn1

On March 22, 2006, MCIA filed a complaint in the Law Division to collect on the note. On May 8, 2006, MCIA filed an amended complaint in which it also alleged that TSI had breached the Redevelopment Agreement. It sought all remedies available under the Agreement, including reversion of title.

On June 22, 2006, TSI responded to MCIA's notifications of default and informed MCIA that it had secured a new partner and that it was prepared to pay off the Mortgage within the next forty-five days. TSI sought the withdrawal of the notice of default of the Redevelopment Agreement and the pending Law Division action, as well as the approval of the modification of the ownership of the Property and the renegotiation of a reasonable development schedule.

On September 7, 2006, MCIA filed a motion for partial summary judgment in the Law Division action. In response, TSI admitted the default on the Note and Mortgage. It argued that the reversion remedy sought by MCIA was barred because it interfered with its right to redeem the property.

In an oral opinion, Judge Jacobson noted that the primary opposition to MCIA's motion seeking enforcement of the Redevelopment Agreement was that enforcement interfered with the equitable right of redemption. Judge Jacobson examined the redevelopment-related statutes, the CIAL and the LRHL, as well as Humble Oil & Refining Co. v. Doerr, 123 N.J. Super. 530 (Ch. Div. 1973), in balancing the equitable rights of the mortgagor against the rights of the redevelopment agency. Judge Jacobson noted that a main concern for the Humble Oil court was fairness and arms-length dealing. She found that this was not a concern here because there was nothing in the record to suggest that the Redevelopment Agreement was not negotiated in an equal and fair manner. The language in the Redevelopment Agreement is clear that upon a breach of the agreement, the Property shall revert to the redevelopment authority.

Judge Jacobson noted that N.J.S.A. 40:55C-2 articulates the legislative goal to redevelop blighted areas to further the health, safety, and morals of the citizens. This goal was enhanced with the passage of the LRHL, which was meant to promote the advancement of community interests through programs of redevelopment, rehabilitation, and incentives to expand and improve commercial, industrial, residential, and civic facilities. Sections of the LRHL also refer to the need to empower authorities to do the redevelopment in an efficient and expedited manner.

Judge Jacobson found that no specific provision in these statutes authorized a reversion clause; however, such relief is consistent with both statutes. Thus, after balancing the equitable right of reversion against the purpose of the redevelopment legislation, Judge Jacobson granted partial summary judgment to MCIA, directed enforcement of the Redevelopment Agreement, and ordered possession and transfer of the title to MCIA due to TSI's default on the mortgage and its breach of the Redevelopment Agreement due to delayed development of the Project.

Judge Jacobson denied the TSI motion for reconsideration. In doing so, she expanded on her initial decision. She did not find that Judge Shuster's decision collaterally estopped her from granting MCIA relief. She held that Judge Shuster only ruled on whether MCIA was entitled to reversion of title within the context of the foreclosure action.

Judge Jacobson also recognized that the public interest underlying the Redevelopment Agreement was a very strong one, of which the parties were aware when they freely entered the agreements. She found that the agreements provided MCIA with alternative remedies, so MCIA was allowed to proceed with the Law Division action in addition to the foreclosure action. Ultimately, Judge Jacobson found that the public interest required enforcement of the Redevelopment Agreement. By order dated December 7, 2006, Judge Jacobson certified the partial summary judgment as a final order, ordered TSI to convey title and possession of the Property to MCIA by December 19, 2007. By order dated January 8, 2007, Judge Jacobson denied a stay pending appeal, but held the order in abeyance until TSI could apply for a stay on an emergent basis. This court denied the application for a stay pending appeal.

On appeal, TSI argues that the contractual remedy of reversion of title under the Redevelopment Agreement bars its right to redeem the Property. It also argues that MCIA failed to follow the contractual conditions to invoke the reversion remedy and that the issue of the right to obtain the remedy of reversion was fully litigated in the foreclosure action. We address the later contention first.

We find no merit to the contention that Judge Shuster definitively ruled on the ability of MCIA to obtain the remedy of reversion of title in the event of a breach of the Redevelopment Agreement. In fact, an analysis of Judge Shuster's opinion reveals he expressly declined to rule on the availability of this remedy in the event MCIA succeeded in its Law Division breach of contract action.

We are also persuaded that the initiation of a mortgage foreclosure action did not bar a parallel or subsequent action on the Note and Redevelopment Agreement. A mortgage foreclosure action is a discretionary remedy, Sovereign Bank, FSB v. Kuelzow, 297 N.J. Super. 187, 196 (App. Div. 1997), designed to efficiently effectuate liquidation of the security, but it is not the only avenue a mortgagee can pursue to recover the debt. See Gimbel v. Venino, 135 N.J. Eq. 574, 579 (Ch. 1944) (noting that instead of liquidating debt through foreclosure, mortgagee opted to take mortgaged property through voluntary conveyance from owner). Just as TSI could not assert its right to proceeds from the cell towers in defense of the foreclosure action, MCIA could not assert its additional contractual rights under the Redevelopment Agreement in the foreclosure action.

TSI argues that the Agreement of Sale, the Note, the Mortgage, the Redevelopment Agreement, and the First Amendment are integrated and must be treated as one contract. It argues that since the documents are one contract, the court failed to consider the impact of the Redevelopment Agreement forfeiture remedy on the right of redemption inherent in the mortgage foreclosure remedy. This interpretation fails to recognize that the Redevelopment Agreement has conditions and obligations beyond periodic payments that may be enforced by MCIA to further the goals of the Redevelopment Plan.

Both TSI and MCIA seem to agree that the documents at issue are integrated documents. However, both do so for different reasons. TSI argues they are integrated in order to advance its argument that the forfeiture remedy in the Redevelopment Agreement should be void as it conflicts with its redemption rights under the foreclosure remedy in the Mortgage. MCIA argues the agreements are integrated to demonstrate that a default of any of the documents results in a default under all of the documents. These arguments focus in particular upon the Mortgage, under which the foreclosure remedy exists, and the Redevelopment Agreement, under which the forfeiture remedy exists, but they both fail to appreciate how these two documents specifically reference one another.

In support of its argument, TSI relies on Graybar Electric Co. v. Continental Casualty Co., 50 N.J. Super. 289, 294 (App. Div. 1958). In Graybar, the bond in question referred to the contract upon the performance of which it was conditioned and we held the documents must be read together. Id. at 294-95.

In this case, the Mortgage refers to the Redevelopment Agreement and provides that failure to fulfill the obligations of the Redevelopment Agreement is an event of default. Thus, a default under the Redevelopment Agreement may be considered a default under the Mortgage and any of the remedies available in the Mortgage for a default are available to remedy a Redevelopment Agreement default.

However, despite the fact that the Redevelopment Agreement and the Mortgage were signed at the same time and that the Mortgage makes references to the Redevelopment Agreement, the Redevelopment Agreement does not incorporate into its events of default a default under the Mortgage. The Redevelopment Agreement states that failure to fulfill the obligations in the Redevelopment Agreement may constitute a default under the Redevelopment Agreement "and/or the Mortgage" and MCIA may exercise its rights under the Redevelopment Agreement or as set forth in the Mortgage. This language only reinforces the reference in the Mortgage, which states that a default under the Redevelopment Agreement constitutes a default under the Mortgage, but it does not necessarily incorporate the Mortgage into the Redevelopment Agreement.

The fact that the Redevelopment Agreement does not incorporate the default events of the Mortgage is legally significant. It is this nuance that distinguishes this situation from that present in Graybar.

Similarly, a default that triggers the ability of a mortgagee to foreclose the mortgage does not necessarily also trigger the right to accelerate the debt and sue on the note executed as part of the same transaction. Poultrymen's Serv. Corp. v. Brown, 77 N.J. Super. 198, 206-07 (Cty. Ct. 1962). In Poultrymen's, the mortgage contained a customary default clause providing that failure to pay taxes upon the mortgaged property would result in the entire amount becoming due under the mortgage at the option of the mortgagee. Id. at 200. The mortgage referenced the note it secured, but the note did not reference the mortgage. Ibid. The question faced by the court was whether the acceleration provision became a part of the note to allow the note holder the right to sue on the note prior to its maturity date. Id. at 200-01.

In answering this question the court first examined the authorities, which proceeded upon the theory that "the note and mortgage, though separate instruments, are not separate contracts, but being executed at the same time and in the course of the same transaction, constitute a single contract." Id. at 203. However, the court found that the more appropriate theory is that a note and mortgage are distinct instruments, the stipulation in the mortgage being regarded as furnishing a remedy on the mortgage, and for the purpose of foreclosure, the notes are regarded as due; but for general purposes the obligations on the notes are to be determined on their own terms. [Id. at 205.]

In determining this was the more appropriate theory, the court recognized that the note was capable of physical separation from the mortgage and that while it may delay a complete remedy, such delay could have been prevented by incorporating in the note the fact that it was subject to or governed by the terms of the mortgage. Id. at 206-07.

Similar to the mortgage and the note in Poultrymen's, the Mortgage in the instant case references the Redevelopment Agreement, but the Redevelopment Agreement does not reference the Mortgage events of default. Id. at 200. The Redevelopment Agreement exists independent of the Mortgage. Moreover, one of the events of default, failure to construct or even commence construction of the contemplated improvements, is entirely separate from any obligation under the Mortgage.

The independent nature of the Redevelopment Agreement and its separate and independent conditions, obligations and events of default, defeat TSI's argument that allowing reversion of title to MCIA violates the rule barring remedies that interfere with the equity of redemption. TSI is partly correct in that a remedy which flows from the Mortgage due to a default under the Mortgage cannot clog the equity of redemption. As stated in Humble Oil, supra, "a mortgagor's equity of redemption cannot be clogged and that he cannot, as a part of the original mortgage transaction, cut off or surrender his right to redeem." 123 N.J. Super. at 544. Therefore, a breach of the Redevelopment Agreement, which is pursued as a default under paragraph 14(c) of the Mortgage, cannot cut off defendant's right to redeem the Property. Judge Shuster addressed this when he prevented plaintiff from obtaining "ownership" pursuant to its foreclosure complaint. If MCIA was allowed to obtain possession of the title through its foreclosure proceedings without first providing defendant with a right to redeem the Property, then MCIA's action would be in violation of Humble Oil principles. Ibid.

MCIA's remedies, however, are not limited to those that flow from the Mortgage because the Mortgage and the Redevelopment Agreement are distinct instruments. Simply because forfeiture is not an appropriate remedy through the Mortgage does not extinguish it as a viable remedy under the Redevelopment Agreement. Lembeck & Betz Eagle Brewing Co. v. Krause, 94 N.J.L. 219, 221 (E. & A. 1920). In Lembeck & Betz, a promissory note and a chattel mortgage were executed as part of the same transaction. Id. at 220. The mortgage contained a condition that was not contained in the note. Ibid. Remedy by action on the note was barred by the statute of limitations, but the court found that

[t]he fact that remedy by action upon the promissory note was barred by the statute of limitations did not have the legal effect to extinguish the obligation created either by the note or the covenant in the chattel mortgage. . . . . Although the remedy on the note for which the chattel mortgage was given as collateral security was barred by the statute, the action upon the specialty -- the covenant in the mortgage -- was not. [Id. at 221 (citation omitted).]

Therefore, while reconveyance of title and possession is not a viable remedy under the Mortgage because it would clog the equity of redemption, it does not prevent plaintiff from seeking that remedy under the terms of the Redevelopment Agreement, as alluded to by Judge Shuster.

In Feldman v. Urban Commercial, Inc., 64 N.J. Super. 364, 368, 372 (Ch. Div. 1960), the court was faced with a similar situation. Feldman involved a redevelopment entity, a redeveloper, and a third-party mortgagee. Id. at 368. The court posed the following question: "'[w]hether the default against the terms, conditions and covenants of the contract and deeds relating to the time for completion of construction entitles [the redevelopment entity] to compel a reconveyance of the premises to it, unencumbered by any lien of [third-party mortgagee's] mortgage?'" Id. at 372. The court responded with a qualified "yes." noting that if the court was just considering the redevelopment entity and the developer, "it seems clear that the latter's non-performance would require a reconveyance to the [redevelopment entity] as plainly provided for in their contract." Id. at 377. Yet, due to circumstances not present in the instant case, i.e., the presence of a third-party mortgagee, the court directed the reconveyance of the property to the redevelopment entity with an equitable lien against the subject property. Id. at 380-81.

As in this case, the trial judge in Feldman found that the contract between the developer and the redevelopment entity, as well as the development provisions in the deed, entitled the redevelopment entity to reconveyance of the property, even though there was also a foreclosure action pending by a mortgagee. Id. at 368, 378-79. The court's interpretation of these contractual terms was also informed by the public policy involved in municipal redevelopment programs, as were the decisions of the trial judge in this case. Id. at 378.

Additionally, the forfeiture provision in the Redevelopment Agreement does not clog the equity of redemption because the Project does not offend the basic policy behind that doctrine. Humble Oil, supra, states that without the clogging doctrine,

"[t]here would have been . . . a door open for the imposition of every kind of restraint on the equity of redemption, and thereby the borrower, through necessity, would have been driven to embrace any terms, however unequal or cruel; which would have tended greatly to the furtherance of usury, and the conversion of the equitable jurisdiction of the court into an engine of fraud and oppression."

[123 N.J. Super. at 547 (quoting Youle v. Richards, 1 N.J. Eq. 534, 538 (Ch. 1832).]

These justifications for the clogging doctrine were readily apparent in Humble Oil, in which an uneducated property owner was taken advantage of by a more sophisticated corporate entity. Id. at 535-44. That is not this case.

Here both parties were sophisticated entities; each were represented by counsel. TSI admitted, "Trenton Studios and Manex [] were adequately represented by counsel; they knew what they were getting into; they signed the mortgage." MCIA was not in a position to "exact severe terms" from defendant, id. at 547, and defendant is not the type of debtor that the clogging doctrine was meant to protect.

Section 3.1, entitled the Mortgagor's Equity of Redemption and Agreements Limiting It, of the Restatement (Third) of Property: Mortgages (1997) (Restatement) supports this view. According to subsection 3.1(b) of the Restatement, agreements created contemporaneously with a mortgage that impair the right to redemption are generally ineffective. However, section 3.1(c) provides an exception to this rule, stating "[a]n agreement in or created contemporaneously with a mortgage that confers on the mortgagee an interest in mortgagor's real estate does not violate this section unless its effectiveness is expressly dependent on mortgagor default." This is essentially what the Redevelopment Agreement does because its enforcement is not dependent upon the mortgagor's default, rather the Redevelopment Agreement is dependent upon defendant's role as the redeveloper. The Mortgage may be partly dependent on defendant's role as redeveloper given its incorporation of the Redevelopment Agreement, but this subsection refers only to the effectiveness of the contemporaneous agreement, i.e. the Redevelopment Agreement, and that agreement is not "expressly dependent on mortgagor default." Ibid.

The illustrations to section 3.1 further support the interpretation that the Redevelopment Agreement falls within the section 3.1(c) exception. Illustrations 9-10 to comment d of section 3.1 pose two examples in which a contemporaneous agreement with the mortgage provides that the mortgagee has the option to purchase the mortgaged real estate at any time while the mortgage is in effect. The first illustration provides that the mortgagee exercises its option ten years later, but the mortgagor refuses to comply. Restatement § 3.1 comment d, illustration 9. In that case, the illustration notes that the clogging doctrine would not prevent a judicial decree of specific performance in favor of the mortgagee. Ibid. The second example is the same situation, but this time the mortgagee exercises the option while the mortgagor is in default and for the purpose of avoiding foreclosure of the mortgage. Restatement § 3.1 comment d, illustration 10. A judicial decree for specific performance still would not be barred by the clogging doctrine. Ibid. Thus, the fact that the Redevelopment Agreement may be enforced while TSI is in default under the Mortgage does not exclude it from falling within the section 3.1(c) exception of the Restatement.

In addition, the comments note that subsection 3.1(c) was meant "to insulate loan transactions from the clogging rule where the mortgagee acquires an interest in the property to enhance the return on its investment rather than to provide a remedy for mortgagor default." Restatement § 3.1 comment b. This intention parallels that of the Redevelopment Agreement because the overarching goal of that agreement was to provide the redevelopment agency with the assurance that the Property was actually being developed consistent with the contemplated goals of the Redevelopment Plan. Comment d to section 3.1 also cautions against an overly dogmatic approach to the right of redemption. If options to purchase mortgaged real estate are viewed as a clog to the equity of redemption, the flow of capital to a variety of socially useful projects may be unduly discouraged. Restatement § 3.01 comment d.

Consequently, Judge Jacobson correctly held that the Redevelopment Agreement is separate from the Mortgage, the agreements were negotiated in a fair manner with the intent of advancing the social policy goals of redevelopment, and the bar on clogging the equity of redemption is not operative in this situation.

Finally, TSI argues that MCIA failed to follow its conditions precedent in instituting the Law Division action under the Redevelopment Agreement because it did not give defendant enough time to cure its default. Notably, TSI did not raise this issue in the trial court.

Normally, this court will not consider an unraised issue when the issue does not go to the jurisdiction of the trial court and it does not concern matters of substantial public interest. Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973). TSI also did not plead "'specifically and with particularity,'" the denial of performance of conditions precedent. Bacon v. Am. Ins. Co., 131 N.J. Super. 450, 454-55 (Law Div. 1974) (quoting R. 4:5-8(b)), aff'd o.b., 138 N.J. Super. 550 (App. Div. 1976). We also note that TSI's response to MCIA's statement of undisputed facts admitted that it was in default of its obligation under the Redevelopment Agreement.

We, therefore, affirm the December 7, 2006 and January 8, 2007 orders.

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