Davidson Bros. v. D. Katz & Sons, Inc.
1990 N.J. LEXIS 105, 121 N.J. 196, 579 A.2d 288 (1990)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
The enforceability of a restrictive non-competition covenant against a subsequent purchaser with notice is determined by a standard of reasonableness, rather than by rigid adherence to the historical 'touch and concern' doctrine. The 'touch and concern' test is merely one of several factors to be considered in the reasonableness analysis.
Facts:
- Davidson Bros., Inc. operated a supermarket at its 'George Street' property, which was unprofitable, allegedly due to competition from its other 'Elizabeth Street' store two miles away.
- In September 1980, Davidson sold the George Street property to D. Katz & Sons, Inc.
- The deed contained a restrictive covenant stating the property could not be used as a supermarket for 40 years, and specified this restriction was a 'covenant attached to and running with the lands.'
- After the sale and closure of the George Street store, Davidson's Elizabeth Street store allegedly became profitable.
- For six years, downtown New Brunswick residents lacked a nearby supermarket.
- In 1986, the New Brunswick Housing Authority (the 'Authority'), with actual notice of the covenant, purchased the George Street property from Katz.
- The Authority then leased the property to C-Town for one dollar per year for the express purpose of operating a supermarket.
- All defendants, including the Authority and C-Town, had actual notice of the restrictive covenant prior to the purchase and lease.
Procedural Posture:
- Davidson Bros., Inc. filed an action in the New Jersey Superior Court, Chancery Division, against D. Katz & Sons, Inc., the City of New Brunswick, C-Town, and the New Brunswick Housing Authority.
- Plaintiff moved for summary judgment, seeking to enforce the restrictive covenant.
- The trial court denied plaintiff's motion and granted summary judgment to defendants, ruling the covenant was unenforceable as a matter of law because it did not 'touch and concern' the land.
- Plaintiff (as appellant) appealed to the Appellate Division.
- The Appellate Division affirmed the trial court's judgment, reasoning that the 'benefit' of the covenant did not 'touch and concern' the plaintiff's retained property.
- Plaintiff (as petitioner) successfully petitioned the Supreme Court of New Jersey for certification.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Is a restrictive covenant in a deed, which prohibits the use of the property as a supermarket for 40 years, enforceable against a subsequent purchaser with actual notice of the covenant?
Opinions:
Majority - Garibaldi, J.
Yes, a restrictive covenant prohibiting use of property as a supermarket may be enforceable against a subsequent purchaser with notice if it is found to be reasonable. The court overrules the precedent set in Brewer v. Marshall & Cheeseman, which held that the burden of a non-competition covenant was personal and could not run with the land. The court rejects rigid adherence to the 'touch and concern' test as the sole inquiry, finding it anachronistic. Instead, it establishes an eight-factor reasonableness test as the guiding inquiry for the enforceability of such covenants. These factors include the parties' intent, the effect on consideration, clarity, notice, reasonableness of area and duration, restraint on trade, public interest, and changed circumstances. The 'touch and concern' doctrine is demoted to one factor within this broader analysis. Because the record is insufficient to apply this new test, the case is remanded to the trial court for a factual hearing on the covenant's reasonableness.
Concurring - Pollock, J.
Yes, the covenant is enforceable against a subsequent purchaser with notice. The majority correctly overrules Brewer and rightly concludes the covenant 'touches and concerns' the land, which should end the enforceability inquiry against a successor. The majority's creation of a broad 'reasonableness' test for enforceability injects harmful uncertainty into property law by conflating the initial validity of the covenant (a contract law issue) with its subsequent enforceability against successors (a property law issue). Considerations like 'public interest' and 'changed circumstances' should not invalidate an otherwise valid covenant; instead, they should inform the court's choice of remedy. The proper resolution is not to invalidate the covenant, but to remand for a determination of whether the appropriate remedy is an injunction or, more suitably in this case, an award of money damages to Davidson, which would compensate the plaintiff while allowing the supermarket to continue operating for the public's benefit.
Analysis:
This decision marks a significant modernization of New Jersey property law, shifting the analysis of restrictive covenants from archaic, rigid property doctrines to a flexible, public policy-based standard of 'reasonableness.' By overruling the 19th-century Brewer precedent and demoting the 'touch and concern' test, the court made non-competition covenants in commercial real estate transactions more defensible, reflecting modern business practices. However, this new multi-factor test replaces a bright-line rule with a fact-sensitive inquiry, granting courts more discretion but potentially creating more uncertainty for parties negotiating and relying on such covenants in real estate transactions.
