June 10, 2013
ALFRED ADEL and WENTWORTH MANAGEMENT, LLC, Plaintiffs-Respondents,
NFPS, INC., Defendant, and MICHAEL GALESI, Defendant-Appellant.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 21, 2013
On appeal from the Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. C-108-10.
John J. Segreto argued the cause for appellant (Segreto, Segreto & Segreto, attorneys; Mr. Segreto, on the brief).
Abe Rappaport argued the cause for respondents (Law Offices of Abe Rappaport, attorneys; Mr. Rappaport, on the brief).
Before Judges Fisher, Alvarez and St. John.
This appeal presents an interesting question about the duration of a right of first refusal. The issue may be simply described in the following manner. A obtained a right of first refusal from B, the owner of certain real property. Many years later, B received an offer to purchase the property from C; B advised A, who decided not to exercise his right of first refusal. As a result, B conveyed the property to C. A few years later, C offered to sell the property to D. The question before us is whether A is entitled to preempt D's purchase and compel the sale of the property to him on the same terms and conditions posed by D. We affirm the summary judgment in favor of D because the contract between A and B did not clearly and unambiguously declare that A's right of first refusal would remain viable once B sold the property to C.
In this case, there is no dispute that from 1960 to 1978, the Maltese and Galesi families jointly engaged in the business of acquiring and developing real property. Among their investments was an office park on Galesi Drive in Wayne. When the families ended their relationship in 1978, they divided this office park. In effectuating this distribution of their assets, the Maltese family came to own 40 Galesi Drive (the property), as a result of a conveyance by Passaic County Brick Yard, Inc. and Rahdine Realty Co. (the Grantees) to the Estate of Anthony Maltese, Sr., Anthony Maltese, Jr., and John Redling (the Grantors). The deed transferring title stated it was subject "to the terms of a certain Right of First Refusal Agreement." An agreement then executed declared that "[s]hould the Grantors, at any time hereafter, receive a bona fide offer from a third party to purchase [the property] and such offer is acceptable to the Grantors, then and in such event the Grantors shall give written notice of such offer to the Grantees, " and "[t]he Grantees shall have thirty (30) days from and after the receipt of said notice in which to elect to purchase the parcel . . ., which is . . . subject of said notice, for the same consideration and upon the same terms and conditions . . . of [such offer]."
In 2005, the Grantors were desirous of selling the property to a third party. Notice of the terms of the offer to purchase was given to the Grantees, who chose not to exercise their right of first refusal. In declining, the Grantees asserted that the Grantors were thereafter "required to provide a new notice to us in the event the matter does not close and a new offer is received from another party." The transaction to the third party occurred, and the property was transferred to 40 Galesi LLC. The transferring deed did not state that it was subject to a right to first refusal.
In connection with the purchase, 40 Galesi LLC executed a mortgage in favor of Wachovia Bank. 40 Galesi LLC later defaulted, and Wachovia commenced a foreclosure action. Wachovia was the successful bidder at a sheriff's sale and thereafter assigned its interest in the property to NFPS, Inc., its wholly-owned subsidiary. The sheriff transferred title to NFPS on December 7, 2009.
In July 2010, NFPS entered into an agreement to sell the property to plaintiff Alfred Adel, who later assigned his contractual rights to plaintiff Wentworth Management, LLC for $850, 000. Plaintiffs' attorney raised the 1978 right of first refusal as a potential cloud on title, causing NFPS to present the issue to defendant Michael Galesi (Galesi), who, in October 2010, claimed the right to purchase the property pursuant to the 1978 agreement.
In November 2010, plaintiffs filed this action against NFPS and Galesi. The Chancery judge granted summary judgment in favor of plaintiffs, declaring the invalidity of the right of first refusal.
When the remaining issues were resolved, Galesi appealed, arguing the Chancery judge misinterpreted the right of first refusal language of the 1978 agreement and, also, erred in determining that the right of first refusal could not be enforced because it violates the rule against perpetuities. Because we agree that the 1978 right of first refusal had no further application once title to the property was transferred to 40 Galesi, LLC, we affirm.
We commence our analysis by considering the contractual right obtained by the Grantees in 1978. Although labeled in the contract as a right of first refusal, the right is more accurately described as a right of preemption. See Wellmore Builders, Inc. v. Wannier, 49 N.J.Super. 456, 464 (App. Div.), certif. granted, 27 N.J. 320 (1958); see also 3 Corbin on Contracts § 11.3 at p. 469 (Rev. ed. 1996). That is, such a contract grants the holder the right to preempt a sale of property by the owner to a third party, by requiring:
the owner, when and if he decides to sell, to offer the property first to the person entitled to the preemption, at the stipulated price, and the pre-emptioner may then elect whether he will buy.
[Wellmore, supra, 49 N.J.Super. at 464]
There is no dispute that such a right was conveyed to the Grantees by way of the 1978 agreement. The question presented is whether the right survived the Grantors' conveyance of the property – after the Grantees declined to preempt – to 40 Galesi LLC in 2005.
Galesi argues that this preemptive right survived the sale of the property to 40 Galesi LLC because, in his view, the right was not personal to the Grantors. That is, Galesi argues that the right was intended to run with the land and would continue to require each succeeding owner, upon receipt of an offer to purchase from a third person, to first provide to the Grantors, or their heirs or assigns, the option to purchase. To support this theory, Galesi chiefly relies on paragraphs 3 and 9 of the 1978 agreement.
Paragraph 3 declares that
The Grantees' failure to exercise the Right of First Refusal granted herein with respect to any parcel of real property hereinabove mentioned or with respect to any offer of a third party in connection therewith shall not be construed or deemed to be a waiver or a relinquishment for the future by the Grantees of said Right of First Refusal with respect to such parcel of real property or with respect to any subsequent offer of a third party in connection therewith.
And paragraph 9 states:
This Agreement shall be binding upon and inure to the benefit of the Grantors and the Grantees and their respective heirs, executors, legal representatives, successors and assigns.
We question whether it may be plausibly maintained that these provisions support a finding that the contracting parties' intended to burden the property and any future owner with the obligation to offer the property to the Grantors, or their heirs or assigns, after the property was sold to a third person. But, even assuming that contention is plausible, the existence of an ambiguity – that is, the presence of more than one plausible interpretation, M.J. Paquet, Inc. v. N.J. Dep't of Transp., 171 N.J. 378, 396 (2002) – requires a rejection of Galesi's argument.
In this regard, the Chancery judge correctly relied upon well-established legal principles. A perdurable right of first refusal of the nature described by Galesi, and to which he lays claim, limits the owner's options and constitutes a restriction on the free and unfettered alienation of property, Mazzeo v. Kartman, 234 N.J.Super. 223, 229 (App. Div. 1989), and is, thus, subject to the manner in which the common law views such restraints. We have recognized that such restrictions "are not favored in law, " and, as a result, they:
are always to be strictly construed, and courts will not aid one person to restrict another in the use of his land unless the right to restrict is made manifest and clear in the restrictive covenant.
[Bruno v. Hanna, 63 N.J.Super. 282, 285 (App. Div. 1960)]
To be sure, this strict construction rule "will not be applied to defeat" a contract's "obvious purpose, " id. at 287, but the meaning attributed by Galesi to the 1978 agreement is by no means apparent on the face of the document.
Paragraph 3's statement that the Grantors' failure to exercise the right of first refusal does not constitute a waiver of its future exercise does not unambiguously demonstrate that the restriction would forever bind future owners. To the contrary, the paragraph's most plausible interpretation was that the Grantors' decision not to preempt the offer received by the owner from a third party would not constitute a waiver if the third party offeror ultimately chose not to purchase the property or the Grantees, in some other way, thereafter retained title. This, in fact, seems to have actually been the Grantors' understanding when they declined to preempt the 2005 offer of 40 Galesi LLC; at that time, the Grantees asserted that Grantors would thereafter be "required to provide a new notice to us in the event the matter does not close and a new offer is received from another party" (emphasis added). And paragraph 9 only purports to preserve for heirs and assigns whatever interest in the agreement the Grantors may have possessed; it does not necessarily suggest that the right of first refusal would survive the property's sale to a third person. In short, there is nothing expressly contained in these paragraphs or any other portion of the 1978 agreement that would suggest or that might be fairly interpreted as imposing on 40 Galesi LLC, or any subsequent owner, the obligation in perpetuity to offer to the Grantees, or their heirs and assigns, the right to preempt an offer made by a third party for the property.
Moreover, even if it could be said that Galesi's view constitutes a plausible interpretation of the 1978 agreement, its presence as one of two plausible interpretations leads to the conclusion that the agreement's duration is doubtful and ambiguous. M.J. Paquet, supra, 171 N.J. at 396. Doubt and ambiguity on this point bars the vindication of Galesi's position. As we held in Cooper River Plaza East, LLC v. The Briad Group, 359 N.J.Super. 518, 526 (App. Div. 2003) (quoting Bruno, supra, 63 N.J.Super. at 287), the meaning of such a restriction "will not be extended by implication and all doubts and ambiguities must be resolved in favor of the owner's unrestricted use of the land." In other words, although a contract's ambiguity would normally preclude summary judgment, an ambiguity purporting to restrict a party's free and unfettered right to transfer property requires that the agreement be construed against enforcement:
the intent of the restriction must manifest itself in the language of the document itself. If ambiguity remains, it cannot be resolved, as would be the case if the initial signatories disputed an ambiguous term, by resort to extrinsic evidence. . . .
[Cooper River, supra, 359 N.J.Super. at 527]
The common law's view of such a restriction arises not just because the restriction limits the owner's full right to alienate the property but also because such a restriction "in the framing of which a subsequent purchaser has had no voice, ought to be so clear" that future owners ought to be deemed to have understood and agreed to be limited. Fortesque v. Carroll, 76 N.J. Eq. 583, 586 (E. & A. 1910); Cooper River, supra, 359 N.J.Super. at 526.
Because Galesi's broad interpretation of the right of first refusal's duration is not clearly and unambiguously expressed in the 1978 agreement, the transaction between NFPS and Adel was not – and any future transactions will not be – inhibited by the 1978 agreement. For these reasons, the Chancery judge properly entered summary judgment against Galesi. And, as a result of that determination, we need not reach Galesi's argument that the judge erred in granting summary judgment on the basis of the common law rule against perpetuities. See Mazzeo, supra, 234 N.J.Super. at 230.