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Berman v. Gurwicz

Decided: January 14, 1981.


Haines, J.s.c.


The Regency Towers is a condominium situated at 5200 Boardwalk in Ventnor, New Jersey. The individual plaintiffs purchased condominium units at the Regency; some executed their purchase agreements prior to the construction of the development, others afterward. The Regency Towers Condominium Association is a plaintiff which represents all owners of units at the Regency. These units are subject to a lease entitled "Recreation and Health Unit Agreement," entered into between the Regency Towers, as landlord, and the Regency Towers Condominium Association, as tenant. The lease was executed and recorded prior to the sale of any units and therefore at a time when the tenant association was controlled by the landlord-owner. It runs for a term of 90 years and covers a recreation area, including a swimming pool, which is a part of the building complex. The initial annual rent is $30,000, increasing gradually until it reaches $48,000 in the seventh year. This rent is collected from the unit owners by the Association as part of a monthly maintenance fee and paid to the landlord.

The suit sounds in fraud. It seeks damages and the cancellation of the recreation lease. Thirteen of the individual plaintiffs claim that representations were made to them, prior to their execution of purchase agreements, that the recreation area covered by the lease belonged to the owners of the units, the cost of its operation to be included in the monthly maintenance payment to be made by them. The remaining ten plaintiffs claim that they were told nothing about the recreation lease prior to their execution of the purchase agreements. In addition, they point to pictures of the Regency, contained in a brochure which they received before agreeing to buy, which show the recreation area as part of the complete Regency structure. Since the brochure includes this diagram and does not mention the lease, it is therefore said to constitute a misrepresentation.

The purchase agreements, executed by all plaintiffs, were essentially the same. They provided that the buyers' rights were ". . . fully and completely subordinate and under and subject to all construction loans, mortgages and related liens heretofore or hereafter made in connection with development of the project by seller . . . without execution of any further legal documents by buyer." Marketable title was to be conveyed subject to these provisions. The agreements provided that: "Buyer subscribes to the Master Deed and Association By-Laws which are incorporated herein by reference and copies of which will be furnished to Buyer prior to settlement." By signing the purchase agreements the buyers consented to amendments, not only to the agreements, but also to the master deed, by-laws and other condominium documents, and appointed the seller an attorney-in-fact for the purpose of executing writings which would effectuate such amendments. No specific reference to a recreation lease is to be found in any sales agreement, although the quoted language was sufficiently broad to permit the subordination of the purchasers' interests in their units to that lease.

Prior to settlement the seller recorded the condominium documents, which consisted of a master deed, the by-laws of the condominium association and the recreation lease, and delivered copies, together with a management contract, to all purchasers at or prior to settlement. The master deed, in words and through exhibits, delineates the common areas owned by all unit purchasers. The recreation area is not a part of these areas. The deed specifically authorized the condominium association to enter into a lease covering the recreation area and reserved to the developer the right to sign the recreation lease on behalf of all contract purchasers and unit owners for a period of five years. The association by-laws authorized the condominium association to lease the recreation facilities from the grantor. The lease itself referred to the master deed and an attached exhibit showing the recreation area colored in purple. The management agreement empowered a manager to collect assessments for common expenses and rents for the recreation facilities.

At settlement every purchaser received a title report, which stated that the insurance policy to be issued would be "subject to the rules, regulations and by-laws of the Regency Towers" and also listed as an exception "conditions, reservations and restrictions as imposed in the master deed of Regency Towers." The deed received by each purchaser refers to the condominium documents and requires the signature of each purchaser as well as the grantor. Plaintiffs, while admitting that they did not read these documents, did not otherwise receive any actual information concerning the recreation lease, and argue that the recording of the condominium documents did not provide them with effective constructive notice.

These are the circumstances upon which plaintiffs base their claims of fraud. Defendants deny that any representations were made concerning the lease of the recreation area, point to the fact that four of the purchasers were attorneys, 11 were represented by attorneys and all were business sophisticates; they underline the additional fact that the condominium documents were not only given to plaintiffs, as acknowledged by their receipts, but also were recorded, thereby providing both actual and constructive notice of the existence of the lease before plaintiffs made settlement. They therefore argue that plaintiffs did not rely upon any representations made to them, if any in fact were made, and move for summary judgment dismissing the complaint.

The factual dispute as to whether representations were made does not prevent a consideration of the motion on the merits. Defendants place plaintiffs in the best possible position by assuming, arguendo , that representations were made. They contend, nevertheless, that they still may not succeed as a matter of law. Thus, factual disputes are eliminated, permitting disposition of the motion on the basis of pure law, the basic requirement supporting the decision of a summary judgment motion. Judson v. Peoples Bank & Trust Co. of Westfield , 17 N.J. 67 (1954).

Before addressing the principal issues, the question of standing must be considered. Several plaintiffs have sold their condominium units since this suit was commenced. Do they have standing to continue as parties? While it is clear that these plaintiffs no longer have an interest in setting aside the lease, their damage claims, covering payment of rents while they owned their units, are still maintainable. They are entitled to preserve their claims of fraud for that limited purpose.

Fraud is defined in Foont-Freedenfeld v. Electro-Protective Corp. , 126 N.J. Super. 254 (App.Div.1973), aff'd 64 N.J. 197 (1974), as follows:

Legal fraud or misrepresentation consists of a material misrepresentation of a presently existing or past fact, made with knowledge of its falsity, with the intention that the other party rely thereon, and he does so rely to his damage. [at 257; citations omitted]

At the heart of the motion to dismiss is the question of reliance. Can plaintiffs sustain the burden of proving reliance when they received documents which, if read, would have disclosed the truth and, in addition, had constructive notice of that truth by reason of the recording of those documents?

A. Reliance; failure to read the contract documents.

Plaintiffs failed to read the contract documents.*fn1 As a general rule one who does not choose to read a contract before signing it cannot later relieve himself of its burdens. Henningsen v. Bloomfield Motors, Inc. , 32 N.J. 358 (1960); Crescent Ring Co. v. Travelers Indemnity Co. , 102 N.J.L. 85 (E. & A.1926); Fivey v. Penna. R.R. Co. , 67 N.J.L. 627 (E. & A.1902); Martinez v. John Hancock Mut. Life Ins. Co. , 145 N.J. Super. 301 (App.Div.1976), cert. ...

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