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

121 N.J. 196, 579 A.2d 288 (1990)

 

RULE:

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; and (8) whether, even if the covenant was reasonable at the time it was executed, "changed circumstances" now make the covenant unreasonable.

FACTS:

Davidson Bros., Inc., along with Irisondra, Inc., owned certain premises located at George Street and 30 Morris Street in New Brunswick  (the "George Street" property). Plaintiff operated a supermarket on that property for approximately seven to eight months. The store operated at a loss allegedly because of competing business from plaintiff's other store, located two miles away (the "Elizabeth Street" property). Plaintiff and Irisondra conveyed, by separate deeds, the George Street property to defendant D. Katz & Sons, Inc., with a restrictive covenant not to operate a supermarket on the premises. Later, defendant city and housing authority, responding to neighborhood residents who lacked a place to shop, purchased the store from the new owner and leased it to a supermarket chain. Plaintiff filed this action in the Chancery Division against defendants D. Katz & Sons, Inc., the City of New Brunswick, and C-Town. 

ISSUE:

Can a restrictive covenant in a deed, providing that the property shall not be used as a supermarket or grocery store, be enforceable against the original covenantor's successor, a subsequent purchaser with actual notice of the covenant?

ANSWER:

Yes.

CONCLUSION:

A "reasonableness" test allows a court to consider the enforceability of a covenant in view of the realities of today's commercial world and not in the light of out-moded theories developed in a vastly different commercial environment. Originally strict adherence to "touch and concern" rule in the old English common-law cases and in Brewer, was to effectuate the then pervasive public policy of restricting many, if not all, encumbrances of the land. Courts today recognize that it is not unreasonable for parties in commercial-property transactions to protect themselves from competition by executing noncompetition covenants. Businesspersons, either as lessees or purchasers may be hesitant to invest substantial sums if they have no minimal protection from a competitor starting a business in the near vicinity. Hence, rather than limiting trade, in some instances, restrictive covenants may increase business activity.

There is insufficient evidence in this record to determine whether the covenant is reasonable. Nevertheless, we think it instructive to comment briefly on the application of the "reasonableness" factors to this covenant. We consider first the intent of the parties when the covenant was executed. It is undisputed that when plaintiff conveyed the property to Katz, it intended that the George Street store would not be used as a supermarket or grocery store for a period of forty years to protect his existing business at the Elizabeth Street store from competition.Plaintiff alleges that the purchase price negotiated between it and Katz took into account the value of the restrictive covenant and that Katz paid less for the property because of the restriction. There is no evidence, however, of the purchase price. It is also undisputed that the covenant was expressly set forth in a recorded deed, that the Authority took title to the premises with actual notice of the restrictive covenant, and, indeed, that all the defendants, including C-Town, had actual notice of the covenant.

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