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Norwood-Jeb, L.L.C. v. North River Mews Associates


April 15, 2009


On appeal from Superior Court of New Jersey, Law Division, Bergen County, No. L-1449-06.

Per curiam.


Argued January 27, 2009

Before Judges Wefing, Parker and LeWinn.

Plaintiff Norwood-Jeb, L.L.C. ("Norwood"), sued defendants for damages arising out of a real estate transaction. Its four-count complaint asserted claims for breach of contract, intentional interference with contract, equitable lien and fraud. The trial court eventually granted summary judgment to all named defendants, and plaintiff has appealed. After reviewing the record in light of the contentions advanced on appeal, we affirm in part, reverse in part, and remand for further proceedings.


In September 1999, Norwood and defendant North River Mews Associates, L.L.C. ("North River"), signed a detailed contract under which Norwood agreed to sell to North River more than eighteen acres of land in Cresskill for a stated purchase price of $6,500,000. Article 1 of the contract, headed "Purchase and Sale," had three subparts. Article 1.1 contained the property description while 1.2 set the purchase price at $6,500,000.

Article 1.2 also noted that Cresskill could seek to transfer a certain portion of its fair share responsibility under the New Jersey Fair Housing Act, N.J.S.A. 52:27D-301 to -329, by making an aggregate contribution which would not exceed $520,000. Norwood agreed to pay to or for the benefit of Cresskill an amount not to exceed $150,000 toward Cresskill's contribution.

Article 1.3 of the contract was headed "Additional Purchase Price." It noted that Cresskill had passed an ordinance approving a planned unit residential development on the tract, divided in the following manner: 75 multi-family residential housing units, 18 of which would be designated as low or moderate income units, referred to as Tract I; 125 congregate care residential units and 75 assisted-living units, to be restricted to residents 65 years of age or older, referred to as Tract II; and 60 independent senior citizen housing units, to be restricted to residents 55 years of age or older, referred to as Tract III. This litigation involves Tract III only.

Subsection (b) of 1.3 contained the following representation:

Buyer further represents to Seller that all of the residential units to be constructed . . . will be marketed to the public on a rental basis. Buyer acknowledges that Seller has agreed to the Purchase Price in reliance on the foregoing representation.

The contract further provided that in the event any of four specified "Ownership Events" occurred, the purchase price would be increased by $20,000 times the number of residential units subject to the Ownership Event. The four specified events were the division of the property, or any portion of it, into separate tax lots; recording a master deed creating a horizontal property regime; recording a master deed creating a condominium; or recording a master declaration or master register creating a cooperative.

Article 1.3 also provided Norwood security for the buyer's promise to pay this additional price. The buyer had the option of providing a letter of credit for a term of five years or agreeing to a deed restriction . . . in form and substance satisfactory to Seller in its sole and absolute discretion, which prohibits any event which is deemed to be an Ownership Event hereunder for a period of five (5) years unless Buyer pays to Seller an amount equal to the Aggregate Subsequent Payments. Further, the parties agreed that if the Buyer elected to have a deed restriction in lieu of providing a letter of credit, defendant Fred A. Daibes, a principal of North River, would execute and deliver his personal guaranty of the additional purchase price. Finally, 1.3(g) stated that the terms of 1.3 would survive the closing.

Article 9 of the contract called for North River to apply for preliminary site plan approval for the proposed development to be constructed on the site. It obligated North River to submit to Norwood all the documents in connection with the application for preliminary site plan approval, including all plans and specifications, prior to filing with the applicable authorities. Article 9.1(b) stated that the application, plans and specifications had to be "acceptable to Seller, in its sole and absolute discretion." The obligation to close was contingent upon receipt of this preliminary site plan approval. The Cresskill Planning Board passed a resolution granting such approval on February 22, 2000.

Five days before the closing, Norwood's attorney sent to North River's attorney for his review and comment a copy of the deed which had been prepared in anticipation of the scheduled closing. North River's attorney had no comments or complaints with respect to any provision of the proposed deed.

The closing occurred on May 24, 2000. In advance of the closing, North River, through its managing member Daibes, assigned all of its rights under the contract to defendant Cresskill Residential Communities, L.L.C. ("Residential"). Residential accepted this assignment through its president, Daibes.

At the closing, Norwood delivered, and Residential accepted, the deed to this tract of land. The deed contained the following language with respect to the deed restriction.

(a) In furtherance of the terms of Section 1.3 of that certain Amended and Restated Agreement of Sale dated September 23, 1999 by and between the Grantor, as seller, and North River Mews Associates, L.L.C. (predecessor-in-interest to Grantee), as buyer, the Grantee, its successors and/or assigns, are prohibited from undertaking or causing to be undertaken the following actions (each an "Ownership Event") with respect to Tract I, Tract II and/or Tract III (hereinafter referred to individually as a "Restricted Property" and collectively as the "Restricted Properties") for a period of five (5) years from the date hereof (hereafter referred to as the "Restricted Period") unless the Grantee, its successor and/or assigns, shall pay to the Grantor, its successor and/or assigns, the additional consideration set forth in paragraph (b) below:

(i) subdividing any or all of the Restricted Properties to create separate tax lots for each residential living unit to be constructed thereon;

(ii) recording with the Bergen County Clerk a master deed which creates a horizontal property regime pursuant to N.J.S.A. 46:8A-1 et seq. (or any successor statute) with respect to any or all of the Restricted Properties;

(iii) recording a master deed with the Bergen County Clerk which creates a condominium pursuant to N.J.S.A. 46:8B-1 et seq. (or any successor statute) with respect to any or all of the Restricted Properties;

(iv) recording with the Bergen County Clerk a master declaration and/or master register which creates a cooperative pursuant to N.J.S.A. 46:8D-1 et seq. (or any successor statute) with respect to any or all of the Restricted Properties; or

(v) taking any other action which would permit individual residential occupants of all or any part of all or any of the Restricted Properties to be vested with any fee ownership or proprietary leasehold estate therein. (emphasis added)

(b) Grantee, its successors and/or assigns, shall not undertake and/or cause to be undertaken any Ownership Event with respect to all or any of the Restricted Properties during the Restricted Period unless and until the Grantee, its successors and/or assigns, shall have paid to the Grantor, its successors and/or assigns, an amount equal to the product of (i) the number of individual residential lots, condominium units, cooperative apartments or other units created by the Ownership Event multiplied by (ii) $20,000.00

(c) The foregoing restrictions shall be binding upon the Grantee, its successors and/or assigns, and shall run with the land until the expiration of the Restricted Period.

At the closing, Daibes executed and delivered to Norwood a "Deed Guaranty" which noted that Norwood had delivered a deed to the Cresskill property containing a certain restriction whereby [Residential's] and its successors' and/or assigns['] right to market any residential units constructed or to be constructed upon, or any residential lots subdivided or to be subdivided from the property conveyed by Deed, is contingent upon the payment from [Residential] to [Norwood] of certain sums of money . . . .

The guaranty stated that Daibes, by signing it, guaranteed "that every Obligation will be paid when it is due, no matter what may happen" and that it covered "all of the Obligations arising out of the Deed."

The deed restriction, and Daibes' guaranty, covered events from the date of closing, May 24, 2000, for a five-year period, and thus ran through May 24, 2005.

In March 2002, Residential conveyed its interest in the property to Cresskill Residential Communities III, L.L.C. ("III"). As with Residential, Daibes was the managing member of III.*fn1 For the balance of this opinion, unless the context requires otherwise, we shall use the term "Cresskill defendants" to encompass North River, Residential, III and Daibes.

In 2003, Residential applied to the Cresskill Planning Board for modification of the site plan approval which had been granted in February 2000. Norwood was not notified of that application.

The record before us indicates that the application for modification of site plan approval was not unexpected from the borough's perspective. The record contains an exchange of correspondence in October 2002 between the borough's attorney and counsel for Residential. The borough attorney had posed several inquiries, one of which was with respect to speculation within the borough that the residences in Tract III might shift from rental to ownership units. Residential's attorney responded:

Many people, mostly seniors who visit the project thinking that Phase I is the "senior" phase ask, after being informed that this is the market and affordable phase, if there is a possibility that the the final "senior" phase would or could be of an ownership type as opposed to a rental, to which they are advised that at this time it is a rental, however there may be a possibility that an ownership type of situation could be contemplated. If so, we would naturally advise you of such a condition and make whatever application is necessary to have such a change approved where so required.

In connection with that application, Cresskill's mayor and council on April 2, 2003, approved an amendment to the borough's Planned Unit Residential Development Zone. The original ordinance, in effect at the time of plaintiff's contract and closing, defined "Independent Senior Housing" as "Multi-family housing designed for persons over fifty-five (55) years of age." The amended ordinance defined "Independent Senior Housing" as "Rental or condominium multi-family housing designed for persons over fifty-five (55) years of age." According to the minutes of the meeting of the mayor and council at which this amendment was adopted, the mayor explained that "the builder came to us and suggested it be changed to senior citizen condos." The mayor stated that the units would be sold at prices ranging from $200,000 to $240,000.

The proposal to amend the zoning to accommodate this modification was submitted to the planning board for its consideration. The board, in turn, requested the views of its professional planner. In his report to the board, he stated the following:

With regard to the question of ownership versus rental, it should be noted that there is no COAH component to this senior citizens residential development, so affordability is not an issue. As importantly, the developer's marketing indicates that most local senior citizens who are in this market-rate consumers' market prefer purchasing rather than renting their personal dwelling unit.

The amended ordinance increased the number of such units from the original sixty to ninety.*fn2 On April 22, 2003, after passage of the amended ordinance, the Cresskill Planning Board approved the request to modify the original site plan approval. The resolution stated as one of its factual findings that the project was for "condominiums for senior citizens 55 years or older."

Residential did not notify Norwood of this change in the nature of the proposed development to be constructed on this land.

In October 2003, well after passage of the amended ordinance and approval of the modified site plan application, Daibes wrote to Graham Jones, the managing member of Norwood. He said he was considering selling a portion of the property to another developer who would market the independent senior housing as condominiums but that the developer was concerned about the deed restriction. Daibes noted that the restriction would expire in May 2005 and expressed the view that it was "remote" that the units could be completed and sold before the restriction expired. If the property were developed and sold as condominium units within the restricted period, Norwood would be entitled to an additional purchase price in excess of $1,000,000. Daibes offered the sum of $100,000 to release the restriction. Norwood refused. The record does not indicate that there were any further efforts by the parties to come to an accommodation on the question.

On May 16, 2005, approximately one week before the deed restriction expired, III conveyed the portion of the property approved for independent senior housing, that is, condominiums, to defendant Tenakill Developers, L.L.C., for $6,500,000. It thus received for approximately five acres the same amount Norwood had received for the entire tract four years earlier. In connection with the sale to Tenakill, Residential, III and Daibes, individually, executed a certification which stated in pertinent part:

In order to induce Tenakill Developers, LLC . . . to purchase the premises and to cause Fidelity National Title Insurance Company to omit the restrictions and agreements in Deed Book 8275, Page 882 as an exception of title, Cresskill Residential Communities, LLC, Cresskill Residential Communities III, LLC and Fred A. Daibes (collectively "Cresskill") represent as follows:

1. That neither they nor their predecessors . . . undertook or caused to be undertaken any action . . . that would constitute an "Ownership Event," as defined in said Deed, during the five (5) year period of said restriction, scheduled to expire on May 26, 2005.

3. Cresskill agrees to indemnify and hold harmless First National Title Insurance Company and Tenakill Developers, LLC from any and all claims arising out of the above.

Tenakill's purchase was financed by defendant Boiling Springs Savings Bank, which required that its mortgage constitute a first lien on the property.

In February 2006, Norwood's counsel wrote to Daibes, demanding payment of the additional purchase price calculated to be due as a result of the sale of the property for condominium development within the five-year restricted period. Shortly thereafter, plaintiff commenced this litigation.

The parties filed cross-motions for summary judgment several months after plaintiff filed its complaint. The trial court granted summary judgment to defendant Daibes on the charge of fraud and denied all other motions, noting there was a triable issue of fact whether plaintiff properly included the fifth clause in the deed restriction and whether the planning board's April 2003 approval of the modified site plan constituted an ownership event.

The parties then commenced upon a period of discovery during which plaintiff learned that Daibes, in his personal financial statements, had valued this tract in December 2002, prior to the amendment to the zoning ordinance and the approval of the revised site plan application, at $2,975,000. His 2003 financial statement, after passage of the amended ordinance and planning board approval, valued this tract at $6,500,000.

Plaintiff also learned that Daibes had pledged the tract as collateral for a loan in October 2003. In connection with that loan, his counsel advised the lender that "[a]ll applicable approvals required at this time for the construction of 87 age restricted condominium units . . . have been obtained . . . ."

Plaintiff also learned that Daibes had, unbeknownst to plaintiff, through Residential and III, executed a series of contracts to sell this tract, commencing in September 2003, for development as condominiums for senior citizens. The only time plaintiff had been contacted was the letter of October 2003, which offered $100,000 to release the restriction.

After a period of discovery, all defendants renewed their motions for summary judgment. The trial court granted the motions, denying only defendants' request for counsel fees and costs. With respect to the Cresskill defendants, the trial court ruled that plaintiff was not entitled to rely upon deed restriction (v), which was the basis of plaintiff's suit. According to the trial court, only deed restrictions (i) through (iv) survived the closing because only those restrictions were contained within the contract of sale. The trial court also ruled that even if the parties had agreed to the placement of deed restriction (v) within the deed, it would be unenforceable because the contract required that all modifications be in writing and signed by the parties. In addition, the trial court ruled that even if the deed restriction were properly placed within the deed and survived the closing, no ownership event had occurred which would trigger the enhanced purchase price. Finally, the trial court ruled that Daibes could not be held personally liable under his guaranty.

With respect to Tenakill and Boiling Springs, the trial court again concluded that no ownership event within the scope of the deed restrictions had occurred. It ruled Tenakill was entitled to summary judgment on the claim of intentional interference with contractual relations because there was no evidence that Tenakill had acted with malice. It held that plaintiff had no claim against Boiling Springs because the parties had never intended that the property would serve as security for the contractual obligations of the Cresskill defendants.

Plaintiff has appealed from the respective orders entered by the trial court. After reviewing this extensive record, we are satisfied that the trial court correctly granted summary judgment to Tenakill and Boiling Springs, and that order should be affirmed. We have concluded, however, that the trial court erred in granting summary judgment to the Cresskill defendants. That order must be reversed, and the matter remanded to the trial court for further proceedings. We reach these determinations for the following reasons.


We turn first to the Cresskill defendants, whom plaintiff sued for breach of contract, breach of the deed restriction and breach of the guaranty. The trial court analyzed these documents separately and concluded that the Cresskill defendants were entitled to summary judgment as a matter of law. In our view, the contract of sale, the deed and the guaranty have to be read together in an attempt to glean the intent of the parties, for the three documents constitute the whole. Lawrence v. Tandy & Allen, Inc., 14 N.J. 1, 6 (1953) (stating "where several writings are made as part of one transaction relating to the same subject matter, they may be read together as one instrument, and the recitals in one may be explained, amplified or limited by reference to the other--the one draws contractual sustenance from the other"); Nester v. O'Donnell, 301 N.J. Super. 198, 210 (App. Div. 1997) (noting that "[a] writing is interpreted as a whole and all writings forming part of the same transaction are interpreted together"). Viewed through this prism, we are satisfied there is a material question of fact with respect to the intent of the parties.

The trial court ruled that deed restriction (v) was unenforceable because it constituted an ineffective attempt to modify the contract, which contained a clause prohibiting any modifications that were not in writing and signed by both parties. Parties to a contract containing such a provision may, however, orally or by their conduct, agree to modify that very provision. McGrath v. Poppleton, 550 F. Supp. 2d 564, 571 (D.N.J. 2008); Estate of Connelly v. United States, 398 F. Supp. 815, 827 (D.N.J. 1975), aff'd, 551 F.2d 545 (3d Cir. 1977); Sodora v. Sodora, 338 N.J. Super. 308, 312 (Ch. Div. 2000). That the contract of sale prohibited an oral modification of its terms is not a legal bar to the enforceability of deed restriction (v).

A party is bound by the apparent intention he or she outwardly manifests to the other party. It is immaterial that he or she had a different, secret intention from that outwardly manifested. Schor v. FMS Financial Corp., 357 N.J. Super. 185, 191 (App. Div. 2002). A jury must resolve the question whether Residential's acceptance of the deed, with the expansive deed restriction (v), represented a modification of the terms of Article 1.3 of the contract of sale.

The trial court also ruled that because deed restriction (v) was not included in the contract of sale, it did not survive the closing. It reached this conclusion through an analysis of the doctrine of merger.

The traditional doctrine of merger holds that 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. . . . This rule of merger satisfies and extinguishes all previous covenants which relate to or are connected with the title, possession, quantity or emblements of the land. Contemporaneously, those covenants in the antecedent contract which are not intended by the parties to be incorporated in the deed, or which are not necessarily satisfied by the execution and delivery of the deed, are collateral agreements and are preserved from merger.

[Andreychak v. Lent, 257 N.J. Super. 69, 72 (App. Div. 1992) (quotations omitted).]

In our judgment, the trial court incorrectly relied on the doctrine of merger by deed. The contract specifically provided that the provisions of Article 1.3 of the contract would survive the closing. Deed restriction (v), however, was not specifically set forth within the contract of sale but is only found within the deed. It is illogical to conclude that deed restriction (v) did not survive the closing under merger by deed when it did not exist until the deed itself was prepared.

Finally, the trial court ruled that in any event plaintiff was not entitled to summary judgment because, as a matter of law, no ownership event within the scope of deed restriction (v) had occurred. The trial court held that passage of the Planning Board resolution approving the modified site plan was not an ownership event for purposes of the deed restriction because it did not permit individuals to be vested with any fee ownership or proprietary leasehold estate. In our judgment, this was a factual question, to be resolved by a jury.

Deed restriction (v) described an ownership event as "taking any other action which would permit individual residential occupants of all or any part of all or any of the Restricted Properties to be vested with any fee ownership or proprietary leasehold estate therein." It did not, by its terms, require that individuals be vested with fee ownership during that five- year period but encompassed the preliminary, but necessary, steps to permit that vesting to occur. If the Planning Board had not approved the modified site plan application, that individual vesting would not have been possible.

Further, the scope of the restriction is seen in the guaranty executed by Daibes contemporaneously with the closing. That guaranty referred to the restriction encompassing a right to market the properties for individual ownership.

Additionally, the approach Daibes made to Norwood in 2003, seeking a release from the restriction in exchange for a payment of $100,000 could be evidential of his understanding that his efforts to market the property for condominiums fit within the scope of the restriction. Daibes may contest that, and argue that the offer was merely a business judgment, an attempt to avoid the cost of litigation. Which view to accept, however, is up to a jury.

Because we have concluded that there is a question of material fact with respect to the liability of the Cresskill defendants on plaintiff's breach of contract claim, it must follow that there is a similar question of fact with respect to the personal guaranty offered by Daibes to secure performance of these restrictions. The summary judgment granted to all the Cresskill defendants must be reversed.


We turn now to the summary judgment granted to defendant Tenakill, the ultimate contract purchaser of Tract III from the Cresskill defendants. Plaintiff's complaint asserted two claims against Tenakill, breach of contract and tortious interference with contractual rights. Plaintiff has not explained how Tenakill, not a party to the contract of sale, can be held liable to plaintiff for its breach.

A party alleging tortious interference with contractual rights must establish that the alleged wrongdoer acted with malice, that is, acted intentionally, without justification or excuse, to inflict the harm. Printing Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739, 751 (1989); Mandel v. UBS/PaineWebber, Inc., 373 N.J. Super. 55, 79-80 (App. Div. 2004), certif. denied, 183 N.J. 213, 214 (2005). We agree with the trial court that the record is devoid of evidence that Tenakill acted with malice toward Norwood when it entered its contract to purchase this property from the Cresskill defendants.

The trial court also granted summary judgment to defendant Boiling Springs, the bank which provided the funds to Tenakill to complete its purchase of Tract III and obtained a first lien on the property. Norwood contended that it was entitled to an equitable lien against Boiling Springs. The trial court correctly granted summary judgment on this count.

"[F]or an equitable lien to arise there must be a debt owing from one person to another, specific property to which the debt attaches, and an intent, expressed or implied, that the property will serve as security for the payment of the debt." Highland Lakes Country Club & Cmty. Ass'n v. Franzino, 186 N.J. 99, 111-12 (2006). Here, there is no indication from the contract documents that the parties intended the property to serve as security for payment of the increased purchase price in the event that became due. Indeed, the whole tenor of the documents, including the individual guaranty by Daibes, indicates otherwise. The trial court correctly granted summary judgment to defendant Boiling Springs.


Plaintiff has appealed two other orders of the trial court--the order of December 8, 2006, which denied the parties' consensual request for an extension of the discovery end-date, and the order of February 22, 2007, quashing subpoenas to non-party witnesses. As we noted earlier in this opinion, all parties moved for summary judgment shortly after plaintiff filed its complaint. Those motions were argued in August 2006. The parties did not receive a decision on these motions until September 2006. The discovery end-date was September 24, 2006, but the parties had not engaged in discovery while the motions were pending. The parties received the trial court's initial decision that factual questions precluded summary judgment, and the assignment of a trial date, within days of each other. They therefore submitted a joint request for an extension of discovery. This request was denied on the basis that it had been submitted beyond the discovery end-date. R. 4:24-1(c). Since the request was a joint request, we decline to consider the belated opposition now presented by Tenakill to plaintiff's appeal of this order. Tenakill, in any event, is not affected by our disposition of this question because we have determined that the trial court properly granted summary judgment to it.

In light of the passage of time which has elapsed since the trial court denied this request, our unfamiliarity with what may have occurred in the interim, and the trial court's apparent willingness to let discovery proceed informally, we decline to rule directly on whether the request for additional time should have been granted. Rather, we direct that upon remand, the trial court promptly conduct a case management conference at which it may address what, if anything, remains to be done before Norwood's claims against the Cresskill defendants proceed to trial. At that conference, plaintiff may address the question of the subpoenas it had served to non-party witnesses. We concur with plaintiff that the discovery end-date is not material to the enforceability of those subpoenas. Further, admissibility of evidence is not the test for enforceability.

To the extent the subpoenas seek the production of confidential business information of third parties not related to this matter, the trial court should review the disputed material in camera and determine what material should be produced to plaintiff and what may be withheld.

For the reasons stated, the orders under review are affirmed in part and reversed in part, and the matter is remanded to the trial court for further proceedings.

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