Nargiz v. Henlopen Developers

• Decision Date: 29 September 1977
• Parties: Paul B. NARGIZ, Plaintiff below, Appellant, v. HENLOPEN DEVELOPERS, a Delaware limited partnership in which Max Ambach is the general partner, Defendant below, Appellee.
• Court: United States State Supreme Court of Delaware

Page 1361

380 A.2d 1361

Paul B. NARGIZ, Plaintiff below, Appellant, v. HENLOPEN DEVELOPERS, a Delaware limited partnership in which

Max Ambach is the general partner, Defendant

below, Appellee.

Supreme Court of Delaware.

Submitted June 17, 1977.

Decided Sept. 29, 1977.

Upon appeal from Superior Court. Reversed.

Robert L. Halbrook, and Dorothy Battle R. Robinson, of Wilson, Halbrook & Bayard, Georgetown, for plaintiff-appellant.

Richard P. Beck, of Morris, James, Hitchens & Williams, Wilmington, for defendant-appellee.

Before HERRMANN, C. J., McNEILLY, J., and BROWN, Vice Chancellor.

BROWN, Vice Chancellor.

This appeal is from a decision of the Superior Court which construed the application of the federal Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1701 et seq., to a contract for the sale of a high-rise condominium unit as authorized by the provisions of the Delaware Unit Property Act, 25 Del.C. § 2201 et seq. Plaintiff below appeals from the denial of his motion for summary judgment and from the granting of the defendant's cross-motion for summary judgment.

There is no dispute as to the material facts. On June 28, 1972 appellant entered into a written contract with the appellee, Henlopen Developers, for the purchase of a unit in the apartment condominium then under construction by Henlopen Developers on property located in Rehoboth Beach. Construction had commenced on this new high-rise condominium apartment building in May 1972 but no condominium units then existed. The contract was accepted by Henlopen Developers on July 19, 1972 and as a part thereof a down payment or earnest money deposit of $7,500 was made by the appellant. The contract itself contained no provision requiring Henlopen Developers to complete the building by any definite date. Nonetheless, the building was substantially completed by the fall of 1973 and the Declaration Plan required by the Delaware Unit Property Act, see 25 Del.C. §§ 2203, 2219, 2220, was recorded in November 1973. Of the 74 units conveyed to various purchasers prior to the filing of this suit, 71 were settled within two years from the date of the applicable sales contracts while the remaining three units were settled after the expiration of that period only at the request of the respective purchasers.

The Interstate Land Sales Full Disclosure Act was enacted by Congress as part of the Housing And Urban Development Act of 1968. It is directed at protecting purchasers from abuse by real estate developers through interstate commerce and the use of the mails in the promotion and sale of properties offered as part of a common promotional plan. Because of the frequent interstate aspects of their promotion and sale, the Act has special relevance to resort and recreational properties. See Adema v. Great Northern Development Co., 374 F.Supp. 318 (N.D.Ga.1973); Zachery v. Treasure Lake of Georgia, Inc., 374 F.Supp. 251 (N.D.Ga.1974); Melhorn v. AMREP Corp., 373 F.Supp. 1378 (M.D.Pa.1974); Hoffman v. Charnita, Inc., 58 F.R.D. 86 (M.D.Pa.1973). At the root of the present controversy is the following portion of § 1703 of the Act:

"(a) It shall be unlawful for any developer or agent, directly or indirectly, to make use of any means or instruments of transportation or communication in the interstate commerce, or of the mails

"(1) to sell or lease any lot in subdivision unless a statement of record with respect to such lot is in effect in accordance with Section 1706 of the title and a printed property report, meeting the requirements of Section 1707 of this title, is furnished to the purchaser in advance of the signing of any contract; . . .

"(b) Any contract or agreement for the purchasing or leasing of a lot in a subdivision covered by this chapter, where the property report has not been given to the purchaser in advance or at the time of his signing, shall be voidable at the option of the purchaser. * * * "

In the present case, no such property report was given to the appellant prior to or at the time of his execution of the contract. By § 1719 of the federal Act, state courts are given concurrent jurisdiction with the federal courts over all suits brought to enforce any duty or liability created by the Act. Appellant elected not to go through with his contract to purchase the condominium unit and accordingly, not having been provided a property report, he brought this action in the Superior Court to avoid the agreement and recover his deposit.

In granting summary judgment for Henlopen Developers the Court below chose not to deal with the argument that the Interstate Land Sales Full Disclosure Act was not intended to apply to contracts for the sale or lease of condominium units. Rather it assumed that even if condominiums generally were within the contemplation of the Act, the sales transaction here was specifically exempted from the requirements of the Act by § 1702(a)(3). This provision specifically excludes from federal regulation

"(3) the sale or lease of any improved land on which there is a residential, commercial, or industrial building, or . . . the sale or lease of land under a contract obligating the seller to erect such a building thereon within a period of two years; . . . " (Emphasis added.)

In reaching this conclusion the Court below reasoned, in effect, that under the Delaware Unit Property Act a deed to a condominium unit must refer to both a recorded "declaration" and supportive "declaration plan" (or survey), 25 Del.C. § 2221, that the declaration plan must contain the verified certification of an architect or engineer showing "the property, the location of the building thereon, the building and the layout of the floors of the building, including the units and the common elements," 25 Del.C. § 2220, and that consequently, to be transferable by deed, a condominium unit must actually and physically exist before a proper declaration plan can be filed and, thus, before it can legally qualify as unit property or real estate. So analyzed, the Court below concluded that of necessity the subject matter of the contract between the appellant and Henlopen Developers was improved land rather than unimproved land. Since the sale of improved land is exempt from the application of the Act, it was concluded that appellant was not entitled to a property report prior...