Berman v. Gurwicz

• Decision Date: 21 August 1981
• Docket Number: B-1
• Citation: 458 A.2d 1311,189 N.J.Super. 89
• Parties: Joseph BERMAN and Phyllis H. Berman, his wife, Albert Reisman and Reva Reisman, his wife, Jacob Holtz and Anna Holtz, his wife, Samuel P. Robinson and Lillian Robinson, his wife, Benjamin Lebed and Pepe Lebed, his wife, M. Milton Singer and Sara W. Singer, his wife, Plaintiffs, v. Max GURWICZ, Edward Gurwicz, a/k/a Herzel Gurwicz, Regency Towers, a New Jersey corporation, Ventnor Management Company, a New Jersey corporation, Regency Towers Condominium Association, a New Jersey nonprofit corporation, Regency Towers Condominium, a condominium established in accordance with the provisions of R.S. 46:8-to 30, Provident National Bank, a national banking corporation, and City of Ventnor, a municipal corporation, jointly, severally and in the alternative, Defendants.
• Court: New Jersey Superior Court

Page 89

189 N.J.Super. 89

458 A.2d 1311

Joseph BERMAN and Phyllis H. Berman, his wife, Albert Reisman and Reva Reisman, his wife, Jacob Holtz and Anna Holtz, his wife, Samuel P. Robinson and Lillian Robinson his wife, Benjamin Lebed and Pepe Lebed, his wife, M. Milton Singer and Sara W. Singer, his wife, Plaintiffs, v. Max GURWICZ, Edward Gurwicz, a/k/a Herzel Gurwicz, Regency Towers, a New Jersey corporation, Ventnor Management Company, a New Jersey corporation, Regency Towers Condominium Association, a New Jersey nonprofit corporation Regency Towers Condominium, a condominium established in accordance with the provisions of R.S. 46:8-B-1 to 30 Provident National Bank, a national banking corporation, and City of Ventnor, a municipal corporation, jointly, severally and in the alternative, Defendants.

Superior Court of New Jersey, Chancery Division,

Atlantic County.

Decided Aug. 21, 1981.

William W. Shultz, Pleasantville, for plaintiffs (Alten, Valentine, Seltzer & Shultz, Pleasantville, attorneys).

Leonard C. Horn, Atlantic City, for defendants (Horn, Goldberg & Gorny, Atlantic City, attorneys).

Joseph Berman and Phyllis H. Berman, pro se.

HAINES, J.S.C.

The Regency Towers is a large 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 construction, others afterward. The Regency Towers Condominium Association is a plaintiff composed of 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 to $48,000 in the seventh year and then remaining at that figure. This rent is collected from the unit owners by the Association in addition to a monthly maintenance fee, and paid to the landlord.

Plaintiffs seek damages and cancellation of the recreation lease; they advance several theories in support of their claims.

A. The Defendants' Nondisclosure

The initial theory advanced by plaintiffs is based upon a claim of fraud, consisting of actual misrepresentation or concealment.

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 that he does so rely to his damage. [Citations omitted.] In equitable fraud, the second element (knowledge) is not necessary, but the other four are essential. [Foont-Freedenfeld v. Electro-Protective, 126 N.J.Super. 254, 257, 314 A.2d 69 (App.Div.1973), aff'd 64 N.J. 197, 314 A.2d 68 (1974) ]

Partial disclosure may amount to fraud. The rule is found in Pomeroy, Equity Jurisprudence, (5 ed. 1941), § 901a:

If in addition to the party's silence there is any statement, even any word or act on his own part, which tends affirmatively to a suppression of the truth, to a covering up or disguising the truth, or to a withdrawal or distraction of the other party's attention or observation from the real facts, then the line is overstepped, and the concealment becomes fraudulent The maxim, is Aliud est celare, aliud tacere. Although a party may keep absolute silence and violate no rule of law or equity, yet if he volunteers to speak and to convey information which may influence the conduct of the other party, he is bound to discover the whole truth. A partial statement then becomes a fraudulent concealment, and even amounts to a false and fraudulent misrepresentation. [at 548-549; footnotes omitted]

Silence, in the face of a duty to disclose, may be a fraudulent concealment. The relationship of the parties may create that duty. The parties here were the buyers and the seller of real property. Caveat emptor, the early rule, no longer prevails in New Jersey. The modern rule is set forth in Weintraub v. Krobatsch, 64 N.J. 445, 317 A.2d 68 (1974):

Our courts have come a long way since the days when the judicial emphasis was on formal rules and ancient precedents rather than on modern concepts of justice and fair dealing. While admittedly our law has progressed more slowly in the real property field than in other fields, there have been notable stirrings even there. See Schipper v. Levitt & Sons, Inc., 44 N.J. 70 (1965); Reste Realty Corporation v. Cooper, 53 N.J. 444 (1969); cf. Marini v. Ireland, 56 N.J. 130 (1960); Totten v. Gruzen, et al, 52 N.J. 202 (1968). In Schipper we elevated the duties of the builder-vendor in the sale of its homes and in the course of our opinion we repeatedly stressed that our law should be based on current notions of what is "right and just." 44 N.J. at 90 [64 N.J. at 455, 317 A.2d 68]

There are three classes of transactions described in Pomeroy, op. cit., § 902, in which a duty to disclose arises. The first class includes definite fiduciary relationships, such as principal and agent, client and attorney; none of which is involved here. The other two classes are described by Pomeroy:

The second class embraces those instances in which there is no existing special fiduciary relation between the parties, and the transaction is not in its essential nature fiduciary, but it appears that either one or each of the parties, in entering into the contract or other transaction, expressly reposes a trust and confidence in the other; or else from the circumstances of the case, the nature of their dealings, or their position towards each other, such a trust and confidence in the particular case is necessarily implied. The nature of the transaction is not the test in this class. Each case must depend on its own circumstances. The trust and confidence, and the consequent duty to disclose, may expressly appear by the very language of the parties, or they may be necessarily implied from their acts and other circumstances. [Footnote omitted]

The third class includes those instances where there is no existing fiduciary relation between the parties, and no special confidence reposed is expressed by their words or implied from their acts, but the very contract or other transaction itself, in its essential nature, is intrinsically fiduciary, and necessarily calls for perfect good faith and full disclosure, without regard to any particular intention of the parties. The contract of insurance is a familiar example. [§ 902 at 552-554]

The significance of the disclosure requirement is underlined by Pomeroy: "If either party to a transaction conceals some fact which is material, which is within his own knowledge, and which it is his duty to disclose, he is guilty of actual fraud." Op. cit., § 901 at 545-546. The rule is set forth in Jewish Center of Sussex County v. Whale, 165 N.J.Super. 84, 397 A.2d 712 (Ch.Div.1978), aff'd 172 N.J.Super. 165, 411 A.2d 475 (App.Div.1980):

The fact that no affirmative misrepresentation of a material fact has been made does not bar relief. The suppression of truth, the withholding of the truth when it should be disclosed, is equivalent to the expression of falsehood. The question under those circumstances is whether the failure to volunteer disclosure of certain facts amounts to fraudulent concealment, or, more specifically, whether the defendant is bound in conscience and duty to recognize that the facts so concealed are significant and material and are facts in respect to which he cannot innocently be silent. Where the circumstances warrant the conclusion that he is so bound and has such a duty, equity will provide relief. [at 89, 397 A.2d 712; citations omitted]

See, also, Nicholson v. Janeway, 16 N.J.Eq. 285, 287 (Ch.1863).

In this State the seller of real property is subject to disclosure requirements. In Tobin v. Paparone Constr. Co., 137 N.J.Super. 518, 349 A.2d 574 (Law Div.1975), a seller of residential property was held liable for failing to disclose the fact that tennis courts, already planned, would be constructed so near the dwelling that they would constitute an annoyance. The court said:

Tobin properly relied on Paparone's representation as to the character of the surrounding neighborhood. Paparone's silence created a mistaken impression on the part of the purchaser which operated to induce the purchaser to buy. This silence was a fraudulent representation and a failure to an implicit condition of sale [at 526, 349 A.2d 574] In Weintraub v. Krobatsch, supra, the Supreme Court held that the seller of a residence had an obligation to disclose to the buyers the existence of insect infestation, if that infestation was known. The court [64 N.J. at 449, 317 A.2d 68] quoted from Keen v. James, 39 N.J.Eq. 527, 540 (E. & A.1885), in which it was stated that "silence may be fraudulent and that relief may be granted to one contractual party where the other suppresses facts which he, under the circumstances is bound in conscience and duty to disclose to the other party and in respect to which he cannot, innocently, be silent." In McDonald v. Mianecki, 79 N.J. 275, 398 A.2d 283 (1979), the Supreme Court provided buyers of dwellings with an implied warranty of habitability. In doing so, it noted that

... the two parties involved in this important transaction [the sale of a dwelling] generally do not bargain as equals. The average buyer lacks the skill and expertise necessary to make an adequate inspection ... the purchaser ... ordinarily relies heavily upon the greater expertise of the vendors to insure a suitable product ... aside from superior knowledge, the builder-vendor is also in a better position to prevent the occurrence of major problems ......