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Calvert v. K. Hovnanian at Galloway IV Inc.

Decided: May 1, 1991.

MARILYN CALVERT, PLAINTIFF-APPELLANT-CROSS-RESPONDENT,
v.
K. HOVNANIAN AT GALLOWAY IV, INC. AND MICHAEL O'NEAL BEDSON, DEFENDANTS-RESPONDENTS-CROSS-APPELLANTS



On appeal from the Superior Court, Law Division, Atlantic County.

King, Long and R.s. Cohen. The opinion of the court was delivered by Long, J.A.D.

Long

[247 NJSuper Page 520] The questions presented here are whether the requirement of an attorney review clause which was embodied in the settlement

approved in New Jersey State Bar Ass'n v. New Jersey Ass'n of Realtor Bds., 186 N.J. Super. 391, 395-98, 452 A.2d 1323 (Ch.Div.1982), aff'd as modified, 93 N.J. 470, 461 A.2d 1112 and 94 N.J. 449, 467 A.2d 577 (1983), is satisfied by a broker-prepared contract which includes the seven-day cancellation clause provided in the Planned Real Estate Development Full Disclosure Act (PREDFDA), N.J.S.A. 45:22A-21 to -42, and if not, what remedy is available to the purchaser aggrieved by the omission.

I

Landarama, Inc. is a wholly-owned subsidiary of defendant K. Hovnanian Developments of New Jersey, Inc. (Hovnanian) and handles the sales of all condominium projects developed by other wholly-owned subsidiaries of Hovnanian including the condominium project known as Society Hill at Galloway III (the development).

In August 1988, plaintiff Marilyn Calvert, who was a widow in her sixties with a high school education, inexperienced in real estate transactions, visited the sales office at the development. She was shown various models of condominiums by defendant Michael O'Neal Bedson, who is a licensed real estate salesperson and is paid a percentage commission based on the purchase amount of each unit he "sells" and of the options chosen by the purchaser.

In September 1988, a model became available which Mrs. Calvert liked. She gave Bedson a $250 non-binding deposit to reserve the unit and executed a Summary of Basic Provisions. This document described the property, price, deposit schedule, listed the buyer's name and address and indicated that no mortgage or mortgage contingency was involved in the deal. At this time Mrs. Calvert was given the following documents by Bedson for her review and/or execution: (1) a procedural Letter of Instruction; (2) a transmittal letter; (3) a Seven-Day Non-Binding Deposit Agreement; (4) a public offering statement as

required by PREDFDA which provided information concerning the property; and (5) a Terms and Conditions Purchase Agreement. According to the Summary of Basic Provisions, that document and the Terms and Conditions Purchase Agreement constituted the "Purchase Agreement." At the time the deposit was given, Mrs. Calvert signed the non-binding deposit form and a copy of the public offering statement. By executing the non-binding deposit form and paying the deposit fee, she reserved the unit for seven days with no obligation to complete the transaction.

Hovnanian pre-fixed the terms (such as sales price, etc.) of the Purchase Agreement, which was produced at the sales office via a computer. Bedson inserted Mrs. Calvert's name and address, and identified the unit she had reserved. On September 17, 1988, Mrs. Calvert tendered an additional deposit of $6,125, for a total deposit of $6,375, and executed the Terms and Conditions Purchase Agreement. On October 18, 1988, a Hovnanian representative executed the Purchase Agreement and the Summary of Basic Provisions and thereafter returned the executed documents to Mrs. Calvert on November 9, 1988.

Because Mrs. Calvert wanted certain options added to the basic unit, an Amendment to the Purchase Agreement and "decorator's selections, options, and upgrades" form were prepared by Bedson and executed by both parties on November 2, 1988. The Amendment to the Purchase Agreement specifically provided that a mortgage contingency clause was not applicable.

The Purchase Agreement contained the following "notice to purchasers" in compliance with PREDFDA:

YOU HAVE THE RIGHT TO CANCEL A CONTRACT OR AGREEMENT BY SENDING OR DELIVERING WRITTEN NOTICE OF CANCELLATION TO THE DEVELOPER BY MIDNIGHT OF THE SEVENTH CALENDAR DAY FOLLOWING THE DAY ON WHICH IT IS EXECUTED. SUCH CANCELLATION IS WITHOUT PENALTY AND ALL MONIES SHALL BE PROMPTLY REFUNDED IN THEIR ENTIRETY.

In addition, the public offering statement required by PREDFDA contained the following "notice to purchasers" on its cover page:

NOTICE TO THE PURCHASER: YOU HAVE THE RIGHT TO CANCEL ANY CONTRACT OR AGREEMENT FOR THE PURCHASE OF ANY LOT, PARCEL, UNIT OR INTEREST IN THIS DEVELOPMENT, WITHOUT CAUSE, BY SENDING OR DELIVERING WRITTEN NOTICE OF CANCELLATION TO THE DEVELOPER OR HIS AGENT BY MIDNIGHT OF THE SEVENTH CALENDAR DAY FOLLOWING THE DAY ON WHICH THE CONTRACT OR AGREEMENT IS EXECUTED. SUCH CANCELLATION IS WITHOUT PENALTY AND ALL MONIES SHALL BE PROMPTLY REFUNDED.

This notice was again repeated in the first page of the foreword of the public offering statement, together with the following admonitions:

Because of the complexity and interdependence of those legal documents, all of the developer's sales and other representatives are prohibited from changing any of the terms and conditions hereof or attempting to interpret their legal effect.

You are urged to consult your own counsel in connection with a review of these documents. The developer's counsel, in turn, will be available to discuss any matter that your counsel may wish to discuss.

Because Mrs. Calvert received the executed Purchase Agreement and Summary of Basic Provisions on November 9, 1988, she had until November 16, 1988 to cancel the agreement per the above-quoted language.

From the outset, Mrs. Calvert had intended to sell her house in order to pay for the new condo. When she was unable to do so, on March 24, 1989, she obtained an attorney. The attorney wrote to Hovnanian on that date and declared the Purchase Agreement null and void because it lacked the attorney review clause and because he did not approve of its contents. He requested a return of Mrs. Calvert's deposit. Hovnanian replied by letter dated April 4, 1989 that closing on the property would be conducted on April 18, 1989; if Mrs. Calvert was not present at that time, it would retain the deposit and immediately release the property for resale.

Mrs. Calvert did not appear at the closing, but filed a complaint on April 10, 1989, before the date ...


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