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1404 Washington Street, LLC v. Riggins


October 28, 2009


On appeal from the Superior Court of New Jersey, Chancery Division, Cape May County, Docket No. C-26-08.

Per curiam.


Argued Telephonically October 7, 2009

Before Judges Carchman and Ashrafi.

Defendant Riggins, Inc. appeals from a judgment of the General Equity Part reforming a deed to substitute restrictive language as to the use of property. We affirm.

The facts are not complex. In 1987, R. Paul Riggins entered into a contract of sale with Dennis deSatnick and Anita K. deSatnick for the sale of real property located at 1404 Washington Street in the City of Cape May (the property). The deSatnick's subsequently assigned their interest in the contract to plaintiff 1404 Washington Street, LLC and by an addendum to the contract, the seller was identified as L.S. Riggins Oil Company (subsequently changed to plaintiff Riggins, Inc.). At the time of the execution of the contract, the property had been utilized as a gas station, and defendant was moving its gas station operation to a new location across the street from the property.

Paragraph 10 of the agreement of sale provided in relevant part, that

[i]n this sale, the Seller agrees to provide and the Buyer agrees to accept a deed known as a Bargain and Sale Deed with Covenants against the Acts of the Grantor with a restriction precluding the use of the property as a gasoline service station and/or an automotive repair and service center.

Because the property required environmental remediation, settlement did not take place until twenty-years later, November 7, 2007. On November 5, 2007, defendant's counsel*fn1 forwarded to plaintiff's attorney, a copy of the proposed deed. The deed was a bargain and sale deed with covenant against grantor's acts and contained the following restrictive language:

The lands and premises described herein and conveyed hereby are conveyed subject to the restriction that said lands and premises shall not be sued as and for a gasoline service station nor any other facility either as a stand alone facility or in connection with any other lands and premises for the sale, dispensing or storage of gasoline, diesel fuel or any motor fuels of any nature. [(Emphasis added).]

No issue was raised regarding the restrictive language, and the matter proceeded to settlement.

According to Riggins, the restrictive language in the contract was an important element in the transaction.

[W]e bought the gasoline station across the street from the - - this property which was also used as a gas station, and since we bought the one across the street, we were going to sell this property, and it was our intention that we would restrict it so that it could - - we wouldn't have a gasoline competitor across the street from us.

When deSatnick received a copy of the deed from the title company after settlement, he observed the language of the restriction. This prompted discussion between the parties but to no avail. This lawsuit ensued.

Following a hearing, the trial judge concluded that plaintiff had engaged in equitable fraud, and he ordered reformation of the deed to conform to the language of the contract. He concluded that even though defendant forwarded the deed two days before the settlement, it had a duty to advise plaintiff of the changed language. This appeal followed.

We have carefully reviewed the record and considered the arguments of counsel. While we agree with the result and generally affirm for the reasons set forth by the trial judge, we question certain observations made by the judge both as to the impact of the contested contract provision as well as duty of a contracting party to advise another party of proposed language in an agreement, especially, where as here, the offending party has provided a copy of the proposed language in advance of the transaction.

We address this latter issue first. In his oral decision, the judge concluded that plaintiff's attorney clearly had a duty to read the proposed restrictive language and if plaintiff disagreed, it had the affirmative obligation to object. However, the judge went on to ask the rhetorical question, "Should the defendant have called attention to [the altered restrictive language] at the time and said let's talk about this? Absolutely." The judge cited no authority for the proposition that a contracting party has such a duty. The judge's statement is too broad, and we do not impose an affirmative duty on contracting parties to advise another party of language utilized especially where, as here, the ultimate closing document was a simple bargain and sale deed with the critical language contained therein.

However, even if we do not impose such a duty, a more basic principle applies here to support the judge's ultimate conclusion - the duty of fair dealing. In support of its appeal, defendant cites Riggle v. Skill, 9 N.J. Super. 372 (Ch. Div. 1950), aff'd o.b., 7 N.J. 268 (1951), for the proposition that equity will not reform a deed on the ground of mistake where the mistake was caused by the complaining party's negligence. Id. at 379. But equity will not stand by and allow another party to benefit where the latter has knowledge of the mistake. In Riggle, plaintiffs, who had failed to obtain a survey, improved an adjacent lot not owned by them but subsequently acquired by defendant. While defendant did not know of the actual location of the improvement, he did know that the improvement was on his property. Judge Haneman (later Justice Haneman) found that if defendant did know of the location, he was guilty of (equitable) fraud, while if he did not know of the location, as he argued, there was a mutual mistake of fact. The judge found that defendant did know of the location and created an equitable remedy to allow plaintiff to acquire the adjacent lot.

The Supreme Court has recognized that "every contract in New Jersey contains an implied covenant of good faith and fair dealing." Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 420 (1996). While Sons of Thunder involved a commercial contract under the Uniform Commercial Code, the duty applies as well to real estate transactions. Cf. Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 224 (2005) (holding that the covenant of good faith and fair dealing governed a lease entered into as an arms-length transaction between sophisticated business entities). While not articulated as such in Riggle, Judge Haneman applied this same principle in framing the equitable relief. While the trial judge here did not posit his conclusion based on the duty of fair dealing, he imposed a specific duty of notice on defendant. We prefer to adhere to the duty of fair dealing as a basis of requiring that language reflect the stated intent of the parties. In this regard, we concur in the ultimate result reached by the trial judge.

We now address our second concern.

The contract here established the basic language of the restriction. On its face, the language of the deed restrictions went beyond the narrow provisions of the contract language. We agree with the trial judge that the language is different. We disagree, however, with his interpretation of the ultimate impact of the reformed restrictive language. We deem it unnecessary to determine whether the contract language, which the trial judge ordered as the reformation language, is so narrow as to preclude the protection afforded by the language utilized by defendant in the deed. Whether the property used in conjunction with other property falls within the scope of the contract restriction is an issue that was not before the trial judge, and any suggestion by him that the issue has been resolved is rejected. Plaintiff offers that there is no present plan to utilize the property in conjunction with other property. The parties agree that the intent of the 1987 contract was to preclude competition for defendant's gasoline station. We leave to another day the issue of whether the reformed language achieves that intent.


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