Davidson Bros., Inc., v. D. Katz & Sons, Inc.

579 A.2d 288 (1990)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

P owned certain premises and operated a supermarket on that property for approximately seven to eight months. The store operated at a loss allegedly because of competing business from P's other store, located two miles away. P conveyed the property to D, with a restrictive covenant not to operate a supermarket on the premises. Each deed contained the following covenant: The lands and premises described herein and conveyed hereby are conveyed subject to the restriction that said lands and premises shall not be used as and for a supermarket or grocery store of a supermarket type, however, designated, for a period of forty (40) years from the date of this deed. This restriction shall be a covenant attached to and running with the lands. The deeds were duly recorded. After the closure of the store, P's other store increased in sales by twenty percent and became profitable. P held a leasehold interest in that property, which commenced in 1978 for a period of twenty years, plus two renewal terms of five years. Local residents were upset that the store was closed. They requested the aid of the City to attract a new food retailer to this urban-renewal area. Six years later an executive of C-Town, a division of a supermarket chain, approached representatives of New Brunswick about securing financial help from the City to build a supermarket. Despite its actual notice of the covenant the Authority purchased the George Street property for $450,000 and agreed to lease adjacent land for use as a parking lot. The Authority invited proposals for the lease of the property to use as a supermarket. C-Town was the only party to submit a proposal at a public auction. All the defendants, in this case, had actual notice of the restrictions contained in the deed and of P's intent to enforce the same. Not only were the deeds recorded but the contract of sale between Katz and the Housing Authority specifically referred to the restrictive covenant and the pending action. P sued Ds. P requested a declaratory judgment that the noncompetition covenant was binding on all subsequent owners of the George Street property. The second count requested an injunction against the City of New Brunswick from leasing the George Street property on any basis that would constitute a gift to a private party in violation of the state constitution. P moved for summary judgment. The trial court denied the motion holding that the covenant was unenforceable. The trial court also held that the rent-free lease between the Authority and C-Town did not violate the New Jersey Constitution of 1947, article eight, section three, paragraphs two and three. The court found that the lease was valid inasmuch as it furthered a 'public purpose' as defined by a two-part test set forth in Roe v. Kervick. Ds moved for summary judgment, which was granted. Plaintiff appealed. The Appellate Division affirmed. The court held that the covenant was unenforceable against a subsequent grantee because the benefit did not 'touch and concern' P's Elizabeth Street property. Specifically, the court reasoned that because the covenant restricted such a comparatively small portion of the market area, less than one-half an acre, and did not impair the use of the other 2,000 acres in the market circle from which the Elizabeth store draws its clientele, the covenant did not enhance the value of the retained estate, and therefore, as a matter of law, would not bind a subsequent purchaser. P appealed.