Law School Case Brief
Davidson Bros. v. D. Katz & Sons, Inc. - 121 N.J. 196, 579 A.2d 288 (1990)
In determining whether a restrictive covenant is "reasonable" and hence enforceable, the following factors should be considered: (1) the intention of the parties when the covenant was executed, and whether the parties had a viable purpose which did not at the time interfere with existing commercial laws, such as antitrust laws, or public policy; (2) whether the covenant had an impact on the considerations exchanged when the covenant was originally executed; (3) whether the covenant clearly and expressly sets forth the restrictions; (4) whether the covenant was in writing, recorded, and if so, whether the subsequent grantee had actual notice of the covenant; (5) whether the covenant is reasonable concerning area, time or duration; (6) whether the covenant imposes an unreasonable restraint on trade or secures a monopoly for the covenantor; (7) whether the covenant interferes with the public interest; (8) whether, even if the covenant was reasonable at the time it was executed, "changed circumstances" now make the covenant unreasonable.
Under N.J. Const. art. 8, § 3, para. 2 and 3, no county, city, borough, town, township or village shall hereafter give any money or property, or loan its money or credit, to or in aid of any individual, association or corporation, or become security for, or be directly or indirectly the owner of, any stock or bonds of any association or corporation. No donation of land or appropriation of money shall be made by the State or any county or municipal corporation to or for the use of any society, association or corporation whatever.
Plaintiff, Davidson Bros., Inc., sold one of its stores with a restrictive covenant preventing its use as a supermarket. Defendants, New Brunswick Housing Authority and City of New Brunswick, responding to neighborhood residents who lacked a place to shop, purchased the store from the new owner and leased it to a supermarket chain. Subsequently, Davidson Bros., Inc. brought suit against the defendants, arguing that the defendants violated the aforementioned restrictive covenant. The New Jersey Superior Court, Appellate Division granted the defendants’ motion for summary judgment, concluding that that the covenant was unenforceable and that the enforcement of non-competition covenants was contrary to a longstanding public policy.
Did the lower court err in granting the defendants’ motion for summary judgment and holding the covenant unenforceable?
The court reversed and remanded the case, holding that the test of whether the restrictive covenant ran with the land should be the reasonableness of the covenant, which made resolution of the dispute through summary judgment inappropriate. The court directed that the trial court must first determine whether the covenant was reasonable at the time it was enacted. If it was reasonable then, but presently adversely affects commercial development and the public welfare of the people of New Brunswick, the trial court may consider whether allowing damages for breach of the covenant is an appropriate remedy. The supermarket could then continue to operate but Davidson would get damages for the value of his covenant. The court found on the issue of whether the lease was an impermissible gift of public property under N.J. Const. art. 8, § 3 that there was insufficient evidence to establish whether the purchase, lease, and operation of the property constituted a "public purpose" and whether defendants' means of accomplishing the public purpose were sufficiently restricted. The court reversed the lower court's order affirming the grant of summary judgment to the defendants and remanded the case to the trial court for findings on the issues of public purpose.
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