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Calvert v. K. Hovnanian at Galloway

Decided: May 28, 1992.

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



On certification to the Superior Court, Appellate Division, whose opinion is reported at 247 N.J. Super. 518 (1991).

Garibaldi, Wilentz, Clifford, Handler, Pollock, O'Hern, Stein

Garibaldi

The opinion of the court was delivered by

GARIBALDI, J.

In this appeal we consider whether an "in-house" real-estate salesperson must insert the attorney-review clause approved by this Court in New Jersey State Bar Ass'n v. New Jersey Association of Realtor Boards, 93 N.J. 470, modified, 94 N.J. 449 (1983) (State Bar Ass'n), into a contract that already contains a seven-day cancellation clause mandated by the Planned Real Estate Development Full Disclosure Act (PREDFDA), N.J.S.A. 45:22A-21 to -42. We conclude that he or she must.

I

We examine a contract prepared by defendant Michael O'Neal Bedson, a licensed New Jersey real-estate salesperson who sells single-family homes on behalf of Landarama, Inc. (Landarama), a licensed broker. Landarama is a wholly-owned subsidiary of K. Hovnanian Developments of New Jersey, Inc. (Hovnanian) and handles the sales of all condominium complexes developed by other wholly-owned subsidiaries of Hovnanian, including Society Hill at Galloway III (Society Hill). Bedson works for Landarama full-time and receives commissions based on a percentage of the cost of each condominium he sells and of the options chosen by the purchaser.

In August 1988, plaintiff, Marilyn Calvert, a widow in her sixties, inexperienced in real-estate matters, visited the sales office at Society Hill. Bedson showed her various models of condominiums. On September 8, 1988, Calvert gave Bedson a $250 deposit to reserve a condominium. She also executed a "Summary of Basic Provisions." Bedson filled out that document with Calvert's name and address and with the name and number of the unit. Landarama's computer generated the remaining contractual provisions specifying when settlement would take place and when additional deposits would be due, and indicating that no mortgage or mortgage contingency was involved in the deal.

Bedson also gave Calvert other documents to review and execute, including a public-offering statement, as required by PREDFDA, and a "Terms and conditions Purchase Agreement." The "Summary of Basic Provisions" and the "Terms and Conditions Purchase Agreement" constituted the Purchase Agreement.

On September 17, 1988, Calvert tendered an additional deposit of $6,125, for a total deposit of $6,375, and executed the Purchase Agreement. On October 18, 1988, a Hovnanian representative executed the Purchase Agreement and then returned it to Calvert on November 9, 1988, together with a cover letter that stated:

Attached are two copies of the contract of sale, which have been executed by an officer of the company. This office represents the interest of K. Hovnanian at Galloway Six, Inc. You, of course, have the right to be represented by an attorney of your choice. And the fee for such representation is a matter to be decided between you and your attorney. If you elect to retain an attorney to represent your interest, please give them a copy of contract of sale.

Because Calvert wanted Hovnanian to add certain options to her condominium, on November 2, 1988, Bedson prepared, and both parties executed, an amendment to the Purchase Agreement. Like the Purchase Agreement, that amendment specifically provided that a mortgage-contingency clause was not applicable.

Society Hill is a "planned real estate development" registered under PREDFDA and therefore subject to its provisions and regulations. See N.J.S.A. 45:22A-21 to -42. PREDFDA was enacted to require full and fair disclosure in the sale of condominiums. It requires that developers submit detailed applications to register their condominium projects, and specifies what must be included in those applications. It also specifies what the developer must disclose in a public offering statement. Specifically, N.J.S.A. 45:22A-26b, as well as N.J.A.C. 5:26-6.2 and 6.3, mandate a seven-day "cooling off" period during which a prospective purchaser can cancel without cause any PREDFDA contract. Thus, Landarama's Purchase Agreement contained the following "notice to purchaser" 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 a similar notice 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.

That notice was again repeated on 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.

Although the Purchase Agreement contained the required PREDFDA language, it did not contain the attorney-review clause that this Court approved in State Bar Ass'n, supra, 93 N.J. 470, and ordered to appear in all real-estate contracts prepared by licensed brokers. In State Bar Ass'n, the Court permitted

real estate brokers and salespersons licensed by the New Jersey Real Estate Commission * * * to prepare contracts for the sale of residential real estate containing one-to-four dwelling units * * * PROVIDED that every such contract shall contain conspicuously at the top of the first page the following language:

This is a legally binding contract that will become final within three business days. During this period you may choose to consult an attorney who can review and cancel the ...


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