Simonson v. Z Cranbury Associates, Ltd. Partnership

• Decision Date: 04 June 1997
• Citation: 695 A.2d 222,149 N.J. 536
• Parties: Edward SIMONSON and Simonson Family Associates, L.P., Plaintiffs-Appellants, v. Z CRANBURY ASSOCIATES, LIMITED PARTNERSHIP, a Delaware Limited Partnership, Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 536

149 N.J. 536

695 A.2d 222

Edward SIMONSON and Simonson Family Associates, L.P. Plaintiffs-Appellants, v. Z CRANBURY ASSOCIATES, LIMITED PARTNERSHIP, a Delaware Limited Partnership, Defendant-Respondent.

Supreme Court of New Jersey.

Argued Oct. 22, 1996.

Decided June 4, 1997.

William D. Grand, Woodbridge, for appellants (Greenbaum, Rowe, Smith, Ravin & Davis, attorneys; Mr. Grand and Gary K. Wolinetz, on the briefs).

Avrom J. Gold, West Orange, for respondent (Mandelbaum, Salsburg, Gold, Lazris, Discenza & Steinberg, attorneys).

PER CURIAM.

The issue on this appeal is whether, in a foreclosure action brought by a mortgagee on a non-recourse purchase-money mortgage, the defaulting mortgagor is entitled to enforce a release provision covering a portion of the mortgaged property.

The subject property is a 249 acre farm in Cranbury, New Jersey. After the developer-mortgagor, Cranbury Associates, L.P. (Cranbury), had paid $180,000 in option payments to secure the right to purchase the property, owned by mortgagee Edward Simonson (Simonson), ¹ Cranbury exercised its right to purchase the property. Cranbury paid ten percent of the $6,723,891 purchase price, as required by the option agreement, with a credit for the $180,000 in option payments previously made. Thus, Cranbury paid $490,000, bringing its total investment in the property up to $670,000. Cranbury's note for the remainder of the purchase price was secured by a non-recourse purchase-money mortgage in favor of Simonson.

The mortgage contained the typical developer's release provision:

3.A. Releases from the lien of this Mortgage shall be obtained for the number of acres of property for which a release from the lien of this Mortgage is sought upon payment of a sum equal to the product of the following formula:

(Number of acres sought to be released) X (1.25) X ($27,000/acre)

The mortgage also contained an additional release provision:

Notwithstanding the foregoing, at any time upon Borrower's request, from and after the date hereof Borrower shall be entitled to the release from the lien of this Mortgage of 20.4 acres without payment of release consideration....

The 20.4 acres subject to this additional release provision equates with the $670,000 in payments made by Cranbury towards the purchase of the entire property.

Cranbury defaulted on the note, and Simonson brought suit to recover the property in November 1990. Cranbury counter-claimed for the release of 20.4 acres of the property pursuant to the additional release provision. The Chancery Division granted Simonson's motion for summary judgment, but held that Cranbury was entitled to the value of 20.4 acres of the property.

The Appellate Division affirmed the judgment of the Chancery Division. 302 N.J.Super. 179, 695 A.2d 279 (1996). The court rejected Simonson's argument that the absence of default was a condition precedent to Cranbury's exercise of the release provision. The court also rejected Simonson's argument that an approved subdivision or development plan was a condition precedent to the exercise of the release provision.

We granted Simonson's petition for certification, 144 N.J. 379, 676 A.2d 1094 (1996), and affirm substantially for the reasons set forth in the Appellate Division opinion. We add only the following comments in light of the dissent.

As noted by the Appellate Division, and implicitly recognized by the dissent, the interpretation of the release provision at issue in this case is dependent primarily on the intent of the parties. Krosnowski v. Krosnowski, 22 N.J. 376, 386, 126 A.2d 182 (1956). The general purpose of the agreement must guide a court's interpretation of its particular terms. Id. at 387, 126 A.2d 182.

The Appellate Division properly understood that the particular release provision at issue in this litigation was intended to assure the mortgagor some return on its investment of approximately $700,000 toward the purchase of the $6.7 million farm. 302 N.J.Super. at 185, 695 A.2d at 283. As noted above, there are actually two release provisions in the mortgage: the typical developer's release provision, and the additional release provision pertaining to the 20.4 acres. Typical release provisions usually are intended to permit the developer to obtain releases for specific parcels of mortgaged property, so that the developer-mortgagor may transfer clean title to the ultimate purchasers and so that the developer-mortgagor can generate revenues to fund the continuing development of the property. The provision pertaining to the 20.4 acres, however, does not contemplate a developed parcel to be sold as part of the development; on the contrary, it is intended to address a different and relatively unique situation.

The dissent erroneously fails to distinguish between the two release provisions contained in the agreement, and analyzes the relevant, contested release provision as if it were the more typical developer's release provision. Post at 545-555, 695 A.2d at 226-232. The dissent correctly perceives that continued development of the remainder of the tract subject to the mortgage is part of the consideration for the typical developer's release provision. Post at 553, 695 A.2d at 230. In respect of that type of provision, a defaulting mortgagor would not be permitted to obtain a release because the mortgagor's default goes to the very consideration for the provision itself.

However, it is clear that continued development of the property does not make up any part of the consideration for the provision at issue on this appeal. To condition the release provision on the absence of default would be tantamount to reading the provision out of the agreement altogether, because absent default on the note, Cranbury would own the property outright and thus have no need for a release pertaining to only 20.4 acres. Instead, the provision essentially memorialized the fact that Cranbury already had purchased the 20.4 acres, and that the mortgage lien did not apply to that amount of the property from the date that Cranbury exercised the option. As properly found by the Appellate Division, 302 N.J.Super. at 185, 695 A.2d 283, there was substantial credible evidence before the trial court sufficient to enable it to come to that conclusion. Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 483-84, 323 A.2d 495 (1974).

The Appellate Division also properly concluded that the mortgagor was not required to obtain subdivision approval prior to its exercise of the release provision. Although the contract could be interpreted literally to impose such a requirement, see post at 558-560, 695 A.2d at 233-234, a contract should not be construed literally so as to defeat the probable intention of the parties; rather, "particular words or clauses may be qualified by the context and given the meaning that comports with the probable intention." West Caldwell v. Caldwell, 26 N.J. 9, 25, 138 A.2d 402 (1958). Because the intent of the release provision was to protect the mortgagor's investment risk, it would frustrate the intent of the parties to require further that the mortgagor obtain subdivision approval before realizing the benefit of its bargained-for security. A more reasonable interpretation of the provision, consistent with the intent of the parties and the purpose of the agreement, would be to require an approved subdivision or development plan only when release is sought pursuant to the typical developer's release provision contained in the agreement.

Although summary judgment is usually inappropriate when factually-sensitive issues such as intent are present, the courts below properly found that, based on the overall purpose of the contract, there was no genuine issue as to the parties' intent in respect of the release provision. Brill v. Guardian Life Ins. Co., 142 N.J. 520, 666 A.2d 146 (1995). Thus, summary judgment was appropriate in the present case.

The judgment of the Appellate Division therefore is affirmed.

STEIN, J. dissenting.

The critical issue posed by this appeal is whether a developer who defaults on payments due on a purchase money note secured by a nonrecourse mortgage on the residential tract to be developed is entitled to enforce, by way of counterclaim in a foreclosure action, a partial-release provision in the mortgage entitling the developer to the release of acreage having a value substantially equivalent to the down payment at closing. An oversimplified statement of the issue is whether the mortgagor's default in payments due on the underlying note relieves the mortgagee of its obligation to honor the release provision.

The lower courts concluded that the apparent intention of the parties was that the right to the release of 20.4 acres was perfected as of the closing of title, the release having been bargained for by the mortgagor as the rough equivalent of the down payment of $670,000 made at closing. The record, however, is uninformative and ambiguous concerning whether the parties intended that the right to release of the property would survive a default in the note secured by the mortgage. At oral argument, we were informed specifically by counsel for the mortgagor that the parties had never entered into negotiations concerning that question, although he argued that the plain language of the mortgage supported the mortgagor's right to a release notwithstanding the default in the note.

The Court is content to affirm the judgment of the Appellate Division which, in turn, affirmed the Chancery Division's determination that the mortgagor's right to the release of 20.4 acres was not defeated by the subsequent default. The Court apparently views the question presented as fact-sensitive, and has elected to affirm substantially on the basis of the opinion below. The Court additionally suggests that that result is required because the "additional release provision" in question is unrelated to the continued development of the...