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Ocean Cape Hotel Corp. v. Masefield Corp.

Decided: October 19, 1960.


Goldmann, Freund and Kilkenny. The opinion of the court was delivered by Freund, J.A.D.


[63 NJSuper Page 375] Plaintiff appeals from a summary judgment entered in defendants' favor by the Superior Court, Chancery Division. Plaintiff alleged that it was induced by the fraudulent oral representations of defendant Masefield Corporation (Masefield) to lease from the latter the Admiral Hotel, in Cape May, for the summer of 1958. The alleged deceitful representations consisted of statements that certain structural defects in the leased premises would be "corrected well in advance of the season," more specifically, "by Memorial Day." The repairs were not completed until the first week in August, and the consequent alleged unsightliness and disorder in the operation of the hotel assertedly resulted in serious financial losses for plaintiff.

Masefield subsequently transferred the Admiral Hotel by deed to Greater Camden Realty Company. Plaintiff alleges that the conveyance was made without consideration, and has therefore joined the Realty Company as a party defendant.

The negotiations between the representatives of the plaintiff corporation and the defendant Masefield resulted, on April 9, 1958, in a comprehensive agreement whereby Masefield leased the hotel to Ocean Cape Hotel Corporation (Ocean Cape) for a period of seven months, commencing April 1, 1958, and terminating on October 31, 1958, for a rental of $17,500. Having made the initial rental deposit of $2,500 upon execution and delivery of the lease, Ocean Cape, through its principal officer and stockholder, George James, subsequently informed Masefield that no further rental payments would be made pending settlement of the dispute regarding structural repairs.

The relief desired by plaintiff consists essentially of the following: the setting aside of the Masefield-Greater Camden conveyance; an injunction against disposition of Masefield's funds other than in the regular course of business; and compensatory and punitive damages for the fraud allegedly perpetrated.

We pause only briefly to discuss defendants' contention that plaintiff Ocean Cape has no standing to maintain this appeal. It appears that, prior to the filing of the appeal, Ocean Cape had been adjudicated a bankrupt, and a trustee had been designated. Defendants urge that all of the bankrupt's causes of action are vested in the trustee, and that the trustee must obtain the approval of the bankruptcy court before assuming the prosecution of the action or delegating its prosecution to the bankrupt. 11 U.S.C.A. § 29, sub. c, p. 189. They contend that plaintiff has not demonstrated compliance with either of these rules.

But with respect to an action by the bankrupt which, as here, is pending at the time of formal adjudication, the trustee does not have to obtain court approval in order to allow the bankrupt to continue prosecution of the action,

but only in order to intervene for the purpose of prosecuting the action himself. Mere adjudication of bankruptcy and appointment of the trustee do not deprive the bankrupt of his right to continue prosecution of the action. Paradise v. Vogtlandische Maschinen-Fabrik , 99 F.2d 53 (3 Cir. 1938); Melnick v. Commercial Casualty Ins. Co. of Newark, N.J. , 221 App. Div. 599, 224 N.Y.S. 516 (1927). If he considers it to be in the best interests of the bankrupt's estate, the trustee may allow the action to proceed, unaffected by the bankruptcy adjudication. See 8 C.J.S. Bankruptcy § 212d, p. 695. Of course, any recovery is for the benefit of the bankrupt's estate. See 1 Collier, Bankruptcy , § 11.10, p. 1173 (1956).

Our rule is that affirmative consent on the part of the trustee is not necessary, and that mere failure to intervene is sufficient indication of consent to the continued prosecution by the bankrupt. See Paradise v. Vogtlandische Maschinen-Fabrik, supra , 99 F.2d , at p. 55.

Defendants' major defense, on the basis of which the trial court granted summary judgment, is Paragraph Seventh of the lease agreement, which reads as follows:

" Seventh: Lessee hereby acknowledges, declares and admits that no representation as to the physical condition of the property or its operations, or its furniture, furnishings, contents, appliances, equipment, or appurtenances, or of the past operations, or the results thereof, have been made by Lessor or its agents prior to or at the time of the execution of this lease, which are not herein expressed or endorsed hereon in writing."

Plaintiff, in maintaining that the pleadings and affidavits made out a prima facie case of fraud, urges that fraud in the inducement to contract cannot, as a matter of law, be waived by the mere insertion, in the written agreement, of a clause disaffirming any ...

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