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Atim Family Partnership v. LMW Properties Corp.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


April 2, 2009

ATIM FAMILY PARTNERSHIP, PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
v.
LMW PROPERTIES CORPORATION, GOLD COAST PROPERTIES, LLC, DEFENDANTS-APPELLANTS/ CROSS-RESPONDENTS, AND ROBERT H. SHANER, III AND EILEEN L. SHANER, DEFENDANTS.

On appeal from the Superior Court of New Jersey, Chancery Division, Cape May County, C-46-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 3, 2009

Before Judges Winkelstein, Gilroy and Chambers.

Defendants LMW Properties and Gold Coast Properties appeal, and plaintiff cross-appeals, from a May 10, 2007, final judgment entered following a bench trial. The trial focused on the enforceability of two provisions of an assignment of an agreement of sale. Plaintiff was acquiring the property to construct an addition to an existing home on an adjacent lot. The first provision at issue stated that the addition would be limited to a garage with a master bedroom located above it. Defendant challenges the trial court's finding that this provision was unenforceable. Plaintiff cross-appeals from that portion of the judgment that found enforceable the provision in the assignment restricting the location of plaintiff's construction to a minimum of thirty-five feet from the bulkhead. We reject both parties' arguments and affirm.

In August 1999, Eustace Mita and his wife, Susanne Mita, owned beach-front property located at 2815 Wesley Avenue in Ocean City (Lot 4). They were the general partners of ATIM Family Partnership (ATIM), which owned property to the north of Lot 4, known as 2805 Wesley Avenue (Lot 2). Lot 4 contained the Mitas' summer home; Lot 2 consisted of a five-unit condominium.

Separating Lots 2 and 4 was a vacant parcel, 2809 Wesley Avenue, (Lot 3), owned by Robert H. Shaner III and his wife Eileen Shaner (Shaner).*fn1 In September 1999, the Shaners entered into an agreement with LMW Properties, owned and operated by Steven Winters, for the sale of Lot 3. LMW intended to construct a duplex on Lot 3.

Mita wanted to purchase Lot 3 so he could own contiguous lots. He asked Shaner to "back out of the deal with Winters and sell it to him." Shaner refused, indicating that he already had a contract with LMW. Mita subsequently contacted Winters and proposed that they exchange properties; Mita wanted ATIM to acquire Lot 3 in exchange for conveying Lot 2 to LMW.

During discussions regarding the exchange, Mita told Winters that he "wanted to put an addition on his existing home that consisted of a garage with a master bedroom above." Winters was concerned about what would be built on Lot 3, should he agree to the exchange, because he wanted to preserve the views from his proposed development on Lot 2. He agreed to Mita's proposed use, but suggested that any development on Lot 3 be setback thirty-five feet from the bulkhead in order to preserve the views from Lot 2. Mita did not recall having any discussions with Winters regarding the intended use of Lot 3 or the restrictions to be placed on the improvements to the property.

LMW, ATIM and Mita, as an ATIM general partner, entered in to an Assignment of Agreement of Sale (the assignment), assigning to ATIM and Mita LMW's rights and interests in the agreement of sale for Lot 3. ATIM executed a single purpose power of attorney, authorizing ATIM's attorney, John York, to represent ATIM at the closing for Lot 3 and to execute all necessary documents, including "assignments," which York testified referred to the assignment at issue, and "other assignments that may be needed." Both Mitas signed the power of attorney as the sole general partners of ATIM.

The assignment reflected Winters's understanding of the development restrictions to be placed on Lot 3 that he had discussed with Mita. Those restrictions, paragraphs 5 and 6 of the assignment, specifically provided:

5. ASSIGNEE represents that he is acquiring [Lot 3] for purposes of constructing a garage addition to his existing home, which garage shall have living space above. However, the use of this [Lot 3] is to service his existing home, located next door to this lot.

6. ASSIGNEE agrees that whatever improvements he makes to [Lot 3], which is the subject of this Assignment, shall be set back a minimum of thirty-five (35) feet from the bulkhead.

Paragraph 9 stated that "The provisions of this Assignment shall survive settlement." Nonetheless, Winters asked Mita to place deed restrictions on Lot 3 consistent with the provisions of the assignment; Mita did not agree to the deed restrictions.

Winters proceeded with the transaction without the deed restrictions, believing that "[Mita's] representations to me regarding the development of [Lot 3] were sound and that he would honor them, and he agreed to them, so that I proceeded under that basis." The agreement to develop the property as a garage with a living space above it was important to Winters's decision to exchange the property; he would not have agreed to the property exchange had Mita not represented or agreed to the development restrictions reflected in the assignment. Winters acknowledged, however, that the construction of a new home similar to the one proposed by ATIM would not concern him so long as it was set back from the bulkhead a minimum of thirty-five feet. He also conceded that if ATIM ultimately transferred Lot 3 to a third party, the development restrictions would not survive the transfer or be binding on the purchaser.

The sale closed in 2000.*fn2 In 2004, ATIM applied to the Ocean City Zoning Board of Adjustment to demolish the existing home on Lot 4 and construct a single-family dwelling that would have expanded across Lots 3 and 4. Winters objected to the proposed construction, claiming that it violated the development restrictions contained in the assignment. To resolve that issue, ATIM filed this declaratory judgment action seeking a declaration that paragraphs 5 and 6 of the assignment were unenforceable.

York, who is not licensed to practice law in New Jersey, testified that he spoke to Mita about the assignment the day before closing. With respect to paragraph 5, York specifically asked him, "Is this in fact what you want to do? You're acquiring a very expensive piece of property. Are you sure that this is how you want to use it?" Mita responded, "that's fine, I just want to establish this as part of a family compound." He also told York that paragraph 6 did not interfere with his expected use of the property. Mita never told York that he objected to the content of paragraphs 5 and 6. York did not negotiate the language of paragraphs 5 and 6 with LMW's attorney, Peter Rhodes, who drafted the assignment; nor did York have any discussions with Rhodes regarding the restrictions. The court found York's testimony credible.

Rhodes testified that although he drafted the assignment, he did not negotiate the terms contained in paragraphs 5 and 6.

Rather, Winters advised him of the terms. Rhodes explained that although he used the term "represents" in paragraph 5 and the term "agrees" in paragraph 6, he "believed them to be the same," and "the intent was that... both provisions were to survive closing and be enforceable as between these two parties."

The trial court found that in discussions between Mita and Winters, Winters expressed concerns with respect to the views and how construction on Lot 3 would affect the views of his proposed construction on Lot 2. The court also made the following findings regarding York's representation of ATIM and Mita: it is more likely than not that some version of those conversations [between Mita and York] indeed took place and it is less likely than not... that York, with all of his experience, would have shown up at the closing, signed a document of that import without having either read it or having read it without having discussed it with his client. So I am satisfied that when he signed the document, York had explicit authorization pursuant to the power-of-attorney from ATIM through Mr. Mita... to sign it.

The court concluded that the restriction contained in paragraph 6 was enforceable; however, the restriction in paragraph 5 was not. The court found that paragraph 6 "constitutes by its provisions and in the context of this case an explicit contractual undertaking between ATIM and [LMW] with respect to setback from the bulkhead." The court explained that "those words cannot in my view be subject to any reasoned interpretation on the facts of this case other than what they say," especially in light of Winters's intent to protect the views of any construction on Lot 2.

The court concluded that paragraph 5 was an unenforceable "representation" because it was not material to the agreement. The court held that restricting the development on Lot 3 to a garage with living space above it did not affect the view issue because "no matter what the construction," it had to be thirty-five feet from the bulkhead. Further, as Winters conceded, the restriction would only be enforceable so long as ATIM owned Lot 3, leading the court to conclude that it was not a material provision because it would not survive a transfer of the property to a third party.

Finally, the court concluded that the setback requirement would survive the transfer of the deed because the parties intended the provisions of the assignment, to the extent the court found them to be enforceable, to survive settlement, as provided for in paragraph 9. The court also concluded that the setback requirement was a collateral agreement that survived the merger doctrine.

A trial judge's factual findings in a non-jury case "are considered binding on appeal when supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). Therefore, we will not disturb the factual findings of a trial judge unless they are "so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Ibid. (quotation omitted), certif. denied, 40 N.J. 221 (1963). Nevertheless, a trial judge's legal interpretations are not entitled to the same level of deference. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). An appellate court undertakes an independent "interpretation of the law and the legal consequences that flow from established facts." Ibid. Interpretation and construction of a contract is a matter of law for the court subject to de novo review. Fastenberg v. Prudential Ins. Co. of Am., 309 N.J. Super. 415, 420 (App. Div. 1998).

To determine the meaning of the terms of an agreement by the objective manifestations of the parties' intent, the terms of the contract must be given their "plain and ordinary meaning." Nester v. O'Donnell, 301 N.J. Super. 198, 210 (App. Div. 1997) (quotation omitted). "A writing is interpreted as a whole and all writings forming part of the same transaction are interpreted together." Ibid. (quotation omitted).

"[W]here the terms of a contract are clear and unambiguous there is no room for interpretation or construction and the courts must enforce those terms as written." Karl's Sales and Service, Inc. v. Gimbel Bros., Inc., 249 N.J. Super. 487, 493 (App. Div.), certif. denied, 127 N.J. 548 (1991). The court has no right "to rewrite the contract merely because one might conclude that it might well have been functionally desirable to draft it differently." Ibid. (quotation omitted). Nor may the court make a better contract for the parties than they have seen fit to make, or to alter it for the benefit of one party or the other. Ibid.

Nevertheless, when "the overall context of the transaction makes the proffered interpretation of the word plainly dubious, the court should look to extrinsic evidence to see whether that interpretation expresses the actual intent of the party who used the language." Schor v. FMS Financial Corp., 357 N.J. Super. 185, 193 (App. Div. 2002). The inquiry is to ascertain and effectuate the intent of the parties: "A contract must be construed as a whole and the intention of the parties is to be collected from the entire instrument and not from detached portions." Washington Constr. Co., Inc. v. Spinella, 8 N.J. 212, 217-18 (1951) (quotation omitted). Where an ambiguity appears in a written agreement, the writing is to be strictly construed against the draftsman. In re Miller, 90 N.J. 210, 221 (1982).

Applying these principles, we reject defendants' argument that paragraph 5 was a material provision of the assignment and survived closing. In considering whether to agree to the property exchange, Winters's primary concern was preserving the views from Lot 2. He admitted that he would not have been concerned had ATIM's proposed construction been something other than a garage with a master bedroom so long as it was a minimum of thirty-five feet from the bulkhead. He concedes that the development restrictions would not be enforceable against a third-party purchaser.

Winters had ample opportunity to review the document and make any necessary changes. Several paragraphs of the assignment, including paragraph 6, specifically use the phrase "Assignee agrees;" yet, paragraph 5 merely states that "Assignee represents" that he is acquiring Lot 3 to construct a garage addition to his existing home. Construing the assignment against Winters as its drafter, it was reasonable for the trial court to conclude that the parties did not intend to be bound by this representation. Put simply, the circumstances surrounding the parties' agreement support the court's conclusion that the restriction in paragraph 5 was not material to Winters's decision to enter the agreement, and that he did not intend to be bound by ATIM's representation that it would construct a garage with a master bedroom on Lot 3.

We turn next to plaintiff's cross-appeal. ATIM argues that paragraphs 5 and 6 are both unenforceable because York did not have authority to bind ATIM to either paragraph because restrictions burdening the use of land require specific authorization, which was not included in the power of attorney the Mitas provided to York. Further, ATIM submits that York did not speak to Mrs. Mita regarding the restrictive provisions; consequently, he did not have both general partners' authorization to agree to the restrictive provisions of the assignment.

With respect to the latter argument, the court concluded:

I am satisfied that by her execution of the power-of-attorney, Mrs. Mita's position is,... that she knew and consented to the transaction that was essentially being driven by her husband through his attorney or his chosen attorney, and that both her and her husband had both actual and apparent authority, I am satisfied, and then she vested it explicitly in the power-of-attorney to grant whatever authority was granted.... to Mr. York through the power-of-attorney to speak on behalf of both Mr. and Mrs. Mita as the general partners as tenants by the entirety for the limited partnership.

Reviewing the court's interpretation of the law de novo, we affirm its conclusion that York acted within his scope of authority to bind ATIM to the restrictive provisions in the assignment. Pursuant to the Uniform Partnership Act (1996), N.J.S.A. 42:1A-1 to -56, an act of a partner, including the execution of an instrument in the partnership name for the purpose of carrying on partnership business, binds the partnership. N.J.S.A. 42:1A-13;*fn3 see also First Am. Title Ins. Co. v. Lawson, 177 N.J. 125, 136 (2003) (any partner can execute any instrument, and in so doing can bind the partnership as a whole in the ordinary course of its business). Therefore, York's failure to discuss the restrictive provisions of the assignment with Mrs. Mita does not release ATIM from those provisions to which Mita agreed on behalf of the partnership. By signing the power of attorney, Mrs. Mita authorized York to agree to the restrictions.

ATIM's contention that York did not have specific authorization pursuant to the power of attorney to bind ATIM to the restrictive provisions is also without merit. York's uncontradicted testimony provides substantial, credible evidence that he discussed the restrictive provisions and the assignment with Mita the day before closing.

ATIM relies on Markowitz v. Berg, 125 N.J. Eq. 56, 61 (Ch. 1939) for the proposition that restrictive provisions require specific authorization, and that a specific agent, like York, employed for a particular purpose cannot exceed his authority and bind the principal. We reject that argument. In Markowitz, an attorney-in-fact for a lending institution was only authorized by the bank to examine title at closing and deliver bond authorizations. Ibid. The attorney exceeded his authority when he approved and executed a second mortgage where he did not have specific authority to do so. Ibid. The facts in Markowitz are not analogous to those here, where ATIM executed a power of attorney specifically authorizing York to "negotiate, sign, seal, execute, acknowledge and deliver such agreements and documents necessary or desirable to effect the purchase and settlement of the purchase... including, without limitation, agreements of sale, qualified intermediary exchange agreements, [and] assignments...." Based on the broad language of the power of attorney, and York's conversations with Mita, sufficient, credible evidence in the record exists to conclude that York had the authority to bind ATIM to the assignment's restrictive provisions.

ATIM next contends that paragraph 6 is unenforceable because, based on the doctrine of merger, it does not survive the transfer of the deed. The trial court concluded that the merger doctrine did not apply. We agree.

In real estate transactions, all warranties and representations made in connection with a sale, unless specifically reserved to hold over after the passage of title, are merged into the deed. Andreychak v. Lent, 257 N.J. Super. 69, 72 (1992). In other words, "the acceptance of a deed by the purchaser from the vendor terminates the contractual relationship between the parties, and their respective rights and liabilities are thereafter determined solely by the deed and not by the contract of sale." Ibid. (quotation omitted). The doctrine of merger, however, does not apply to collateral covenants that do not relate to the title, possession, quantity or emblements of the land. Caparrelli v. Rolling Greens, Inc., 39 N.J. 585, 590-91 (1963).

A seller's covenant as to the use of realty is an independent, separate and collateral covenant and not deemed merged in the deed. Campbell v. Heller, 36 N.J. Super. 361, 366-69 (Ch. Div. 1955) (provision in agreement of sale that warranted that no restrictions of record existed to prevent the use and occupancy of the premises as a single family residence was collateral to deed and did not merge therein); see also Caparrelli, supra, 39 N.J. at 591 (warranty as to habitability of premises is collateral undertaking that does not merge with deed); Weinberg v. Wilensky, 26 N.J. Super. 301, 303, 305 (App. Div. 1953) (seller's agreement in contract for sale of land to construct house in accordance with certain specifications was collateral agreement not to be merged in the deed). In paragraph 6, ATIM agreed to construct a building on Lot 3 according to a certain specification, specifically, that the addition be located a minimum of thirty-five feet from the bulkhead. That agreement was not connected to title, possession, quantity or emblements of the land, and consequently was not subject to merger.

Paragraph 6 also survives the transfer of the deed because the assignment specifically states that its provisions "shall survive settlement." That paragraph, which directly impacted the parties' intent that Winters retain his view from Lot 2, was a material term of the assignment.

Next, ATIM contends that the trial court "ignored" plaintiff's counsel's cross-examination of York regarding his authority to execute the assignment. At trial, when defense counsel objected to this line of questioning, the court overruled the objection, stating: "I'm going to overrule your objection, not because I think you're wrong, but because I've given up. I'm just not going to pay any attention. [Plaintiff's counsel] can do whatever he wants until he gets to something that's relevant. You may proceed." Plaintiff's counsel directed York to answer the question, and continued cross-examining him regarding the scope of his representation and his authority to execute the assignment.

The scope of cross-examination of a witness rests in the discretion of the trial judge, and appellate courts will not interfere absent clear error and undue prejudice. Janus v. Hackensack Hospital, 131 N.J. Super. 535, 540 (App. Div. 1974), certif. denied, 67 N.J. 95 (1975); N.J.R.E. 611. Here, in light of the entire record, we conclude that the trial court's comments did not limit plaintiff's counsel's ability to effectively cross-examine York. Counsel was given ample opportunity to pursue those areas that could potentially damage York's credibility and question his authority to execute the assignment. Although the language used by the judge, when viewed in isolation, could lead plaintiff to believe that the judge would not consider the testimony elicited on cross-examination, when viewed in context, we do not reach that conclusion. We construe the trial judge's remarks as meaning that he was not going to consider what he believed was irrelevant or insufficient evidence. That the judge found certain questions irrelevant to his determination of the enforceability of the restrictive provisions was within his discretion as the factfinder.

ATIM also takes issue with the court's instruction to counsel to "inquire about the documents that do exist rather than the ones that don't[.]" The court's comment came in response to plaintiff's counsel's persistent attempts to demonstrate the lack of documentation between the parties' attorneys concerning the restrictive provisions. The court explained that it could assume by the lack of evidence of such documents, that none existed. The court's comments were not an abuse of discretion, simply an effort to avoid undue consumption of time. See Biunno, Current N.J. Rules of Evidence, comment 1 on N.J.R.E. 611 (trial court is given broad discretion to "exercise reasonable control over the mode and order of interrogating witnesses and presenting evidence" to effectively ascertain the truth and avoid needless consumption of time).

Plaintiff also contends that the court refused to consider and allow plaintiff's counsel an opportunity to fully explore certain discrepancies in the assignment and agreement of sale based upon exchanges of drafts of the assignment between the parties and their attorneys during negotiations. The record does not support that contention. After extensive cross-examination of York regarding the discrepancies in the assignment, the court commented: "An hour ago it was clear that the document in the portions that I care about never changed the language." Referring to the restrictive provisions, the court noted that the only discrepancies in the drafts of the assignment were in how many numbered paragraphs there were. Despite the court's comment, it permitted plaintiff's counsel to continue to cross-examine the witness. Thus, there is no support for plaintiff's contention that the court unfairly limited its cross-examination.

Plaintiff's remaining arguments as to the examination and cross-examination of witnesses are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

Affirmed.


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