Summary of Davidson Bros v. Katz & Sons, S. Ct N Jersey  [1990]

Enforcement and Running Covenants – Successors

Relevant Facts: Pl, Davidson co-owned George Street property where it operated a grocery store, Df also operated another grocery store on Elizabeth Street.  B/c of competing business Df sold the George Street store to Katz, subject to a covenant not to operate a supermarket thereupon for 40 years, and it was attached to and ran w/ the land.  Dfs Authority and City, were requested to attract a new food retailer by the residence who suffered from the closure.  They purchased the property from Df Katz and leased to C-Store in order to open a grocery store.   All had notice.  The deed was recorded and the K for sale (K & Auth) included reference to the restriction.

Legal Issue(s): Whether a restrictive covenant in a deed, providing that the property shall not be used as a supermarket, or grocery store, is enforceable against the original covenantor’s successor, a subsequent purchaser w/ actual notice of the covenant?

Court’s Holding: Yes

Procedure: Tr Ct. denied Pl Summary, granted Df’s; App Div, affirmed; S. Ct. Reversed in part.

Law or Rule(s): Two criteria must be met for the enforcement of covenants against successors:  1) The original covenanting parties must intend that the covenant runs; 2) the covenant must touch and concern the land.

Court Rationale:  In using a reasonbleness analysis, with Notice of a non competing covenant which both benefits and burdens it therefor T & C the land, and then may be evaluated for reasonableness.  Most jurisdictions engage the reasonableness factors, rather than twisting the T & C test to meet the required result.  The trial ct must first determine whether the covenant was reasonable at the time it was enacted.  If it was but now adversely affects commercial development and public welfare it may consider allowing damages for breach of the covenant.

CONCURRENCE: The covenant burdened George Street and benefited Elizabeth St. it therefor touches and concerns the land.  Both the original parties and successors admittedly had actual notice.  The language was clear in the deed which was recorded.  A new test is not required to decide the case.

Plaintiff’s Argument: The covenant of noncompetition runs with the land.  The T & C test should be eliminated in determining the enforceability of fully negotiated Ks; “reasonableness.”

Defendant’s Argument: Due to the circumstances of the neighborhood, Pl’s covenant interferes w/ the public’s interest.

Reasonableness  Factors : 1 – The intention of the parties when executed, whether viable purpose exists, or contrary to law/public policy; 2 – Whether the covenant had an impact on the consideration exchanged; 3 – Whether the covenant clearly/expressly sets forth the restrictions;     4 – Whether the covenant was in writing, recorded, and whether subsequent had Notice; 5 – If the covenant is reasonable concerning area, time of duration and not extended into perpetuity; 6 – If the covenant imposes an unreasonable restraint on trade or secures a monopoly; 7 – Whether the covenant interferes w/ the public interest; 8 – Whether, even if reasonable at the time, b/c of changed circumstances, the covenant is now unreasonable.