DAVIDSON BROS., INC., V. D. KATZ & SONS, INC.
579 A.2d 288 (1990)
NATURE OF THE CASE: Davidson (P) brought suit against Katz (D) arguing that a restrictive
covenant prevented the operation of a supermarket on property formerly owned by P and that
Ds had violated N.J. Const. art. 8, 3, prohibiting gifts of public funds for private use.
P appealed an order granting Ds' motion for summary judgment.
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.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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