Novare Grp., Inc. v. Sarif

• Decision Date: 21 November 2011
• Docket Number: No. S11G0478.,S11G0478.
• Citation: 11 FCDR 3606,290 Ga. 186,718 S.E.2d 304
• Parties: NOVARE GROUP, INC., et al. v. SARIF et al.
• Court: Georgia Supreme Court

11 FCDR 3606

290 Ga. 186

718 S.E.2d 304

NOVARE GROUP, INC., et al.

v.SARIF et al.

No. S11G0478.

Supreme Court of Georgia.

Nov. 21, 2011.

Troutman Sanders, Thomas E. Reilly, Brian P. Watt, William N. Withrow, Jr., Atlanta, for appellant.

Weinstock & Scavo, Atlanta, Michael Weinstock, Ehrenclou & Grover, Wallace H. Ehrenclou, The Geheren Firm, James R. Fletcher II, for appellee.

Weissman, Nowack, Curry & Wilco, Atlanta, Seth G. Weissman, Ned Blumenthal, amici curiae.HUNSTEIN, Chief Justice.

We granted certiorari to determine whether the Court of Appeals erred when it reversed the trial court's grant of judgment on the pleadings on Purchasers' claims for fraud, negligent misrepresentation, negligent supervision, and violation of the Georgia Fair Business Practices Act (“FBPA”). We now hold that the trial court properly granted judgment on the pleadings, and, therefore, we reverse the Court of Appeals.

Appellants David Sarif, Les Retter, Jay Baker, Ron Agami, Jonathan Samuels, Donna Wong, Sean Warren and Shaun Weinstock (“Purchasers”) each bought a residential condominium on the south side of Twelve Atlantic Station (“Twelve”) in late 2005 or early 2006. Purchasers brought suit against Novare Group, Inc., WN Atlantic Properties LLC, Atlantic WN Properties, Inc., Twelve Hotels and Residences LLC, Novare Group Holdings LLC, Michael Everly, James Borders (collectively, “Developers”) and Novare Realty LLC (“Brokers”), alleging that at the time of their purchases at the 26–story Twelve, Developers had already undertaken plans to develop the 46–story Atlantic directly across the street. Developers advertised “spectacular city views” from Twelve, and Brokers advised that any future development to the south of Twelve would be low- to mid-rise office buildings. Purchasers allege they paid substantial premiums for their views of the city from the south side of the building, which are now blocked by the Atlantic.

Each Purchaser signed an agreement containing a provision stating that “[t]he views from and natural light available to the Unit may change over time due to, among other circumstances, additional development and the removal or addition of landscaping”; a disclaimer at the top of the first page as required by the Georgia Condominium Act stating that “ORAL REPRESENTATIONS CANNOT BE RELIED UPON AS CORRECTLY STATING THE REPRESENTATIONS OF SELLER”; an express disclaimer in which Purchasers affirmed that they did not rely upon any representations or statements of Brokers; ¹ and a comprehensive merger clause.²

Purchasers filed this lawsuit on December 31, 2008, raising allegations of fraud in the inducement, negligent misrepresentation, negligent supervision, and violation of the FBPA, as well as negligence claims against the individual defendants. The complaint does not state a separate cause of action for rescission, though it does include rescission as one of the prayers for relief.

On the same date the lawsuit was filed, counsel for Purchasers sent a certified letter to Developers' counsel demanding rescission on behalf of all eight Purchasers. The letter states that Purchasers “desire a rescission and hereby tender same.” Though the letter purports to give Developers thirty days to respond to the demand for rescission, the letter also states that Purchasers had already “filed the enclosed civil action against all the named defendants.”

Developers filed a motion to dismiss or for judgment on the pleadings in July 2009, and Purchasers filed a motion for summary judgment in August 2009. In separate orders, the trial court granted judgment on the pleadings in favor of Developers and denied Purchasers' motion for summary judgment. The Court of Appeals reversed the trial court's order of judgment on the pleadings as to fraud in the inducement based on active concealment, negligent misrepresentation, negligent supervision, and violation of the FBPA.³ See Sarif v. Novare Group, Inc., 306 Ga.App. 741, 742, 703 S.E.2d 348 (2010). This appeal ensued.

1. The Court of Appeals held that Purchasers successfully pled a claim for rescission, and thus, could sustain their fraud-based claims. However, even construing the pleadings favorably to Purchasers, as we are required to do, it is clear that Purchasers did not properly rescind the agreements.

“ ‘In general, a party alleging fraudulent inducement to enter a contract has two options: (1) affirm the contract and sue for damages from the fraud or breach; or (2) promptly rescind the contract and sue in tort for fraud.’ ” Ekeledo v. Amporful, 281 Ga. 817, 819(1), 642 S.E.2d 20 (2007). Where a party elects to rescind the contract, he must do so prior to filing the lawsuit. See Williams v. Fouche, 157 Ga. 227(1), 121 S.E. 217 (1924).

Purchasers failed to tender rescission prior to filing their lawsuit. In Williams, the Court recognized that “the rule requiring one who seeks the rescission of a contract on the ground of fraud to restore, or offer to restore, the consideration received, as a condition precedent to bringing the action, is settled in this State.” (Emphasis supplied.) Id. at 228–229, 121 S.E. 217. The Court in Williams reasoned that the party charged with perpetrating a fraud should be given the opportunity to redress the wrong before being served with a suit for rescission. Id. at 228, 121 S.E. 217.

Here, Purchasers sent a certified letter to Developers' counsel purporting to rescind their agreements on the same day they filed their lawsuit. However, the letter clearly states that the lawsuit had already been filed. Given that the Developers should have been given the opportunity to correct any wrong before being served with a lawsuit, Purchasers' demand for rescission, served contemporaneously with the filing of their lawsuit, cannot be held to satisfy the prerequisite.

Therefore, the trial court was correct in finding that the Purchasers did not properly elect rescission as a remedy, and the Court of Appeals erred in reversing its decision.

2. More importantly, the question of whether Purchasers elected rescission is moot. It is well-settled law in Georgia that a party who has “the capacity and opportunity to read a written contract cannot afterwards set up fraud in the procurement of his signature to the instrument” based on oral representations that differ from the terms of the contract. Craft v. Drake, 244 Ga. 406, 408, 260 S.E.2d 475 (1979). Statements that directly contradict the terms of the agreement or offer future promises simply cannot form the basis of a fraud claim for the purpose of cancelling or rescinding a contract. Id. In fact, the only type of fraud that can relieve a party of his obligation to read a written contract and be bound by its terms is a fraud that prevents the party from reading the contract. Beckwith v. Peterson, 227 Ga. 403(1), 181 S.E.2d 51 (1971).

In Craft, the plaintiff alleged that a bank officer fraudulently induced him to execute certain notes by misrepresenting that plaintiff's home would not be used as collateral for the note. However, the express terms of the note specifically stated that the holder would have a security interest in any property held by the plaintiff at the time of execution or subsequently acquired. The Court held that because the oral misrepresentation was directly contradicted by the language of the agreement and because the statements were promissory in nature as to future acts, the plaintiff was bound by the terms of the note he signed. See Craft, 244 Ga. at 408, 260 S.E.2d 475.

The crux of Purchasers' argument here is that they are not bound by the terms of their agreements because Brokers promised “spectacular city views” from the south side of Twelve at the same time that Developers were moving forward with plans to erect a 46–story condominium across the street that would ultimately block Purchasers' views. Nevertheless, Purchasers all signed agreements that expressly state that the views may change over time, oral representations of the sellers could not be relied upon, Purchasers did not in fact rely upon any oral representations or statements of Brokers, and the entire agreement between the parties was set forth in the terms of the written contract.

Therefore, the fraud alleged by Purchasers is not the type of fraud that allows a party to cancel or rescind a contract. To be able to rescind a contract, the fraud must be of a nature that the Purchasers were deprived of an opportunity to read the agreements. There is no allegation in this case that Developers or Brokers tried to prevent the Purchasers from reading the terms of the agreements. Rather, the alleged misrepresentation upon which Purchasers premise their fraud claim is simply a promise regarding future events specifically a promise that their views would not be blocked. However, this Court made clear in Craft that future promises are not sufficient to sustain fraud-based claims. Craft, 244 Ga. at 408, 260 S.E.2d 475. Purchasers are not entitled to back out of a written agreement whose terms expressly contradict the oral representations on which Purchasers claim to have relied. Accordingly, the Court of Appeals erred in holding that Purchasers were not bound by the agreements they signed.

3. Since Purchasers did not properly elect rescission as a remedy, and more importantly,...