Board of Managers of The Soundings Condominium v. Sonja Foerster

Board of Managers of The Soundings Condominium v. Sonja Foerster
Supreme Court of the State of New York, Appellate Division, First Department, February 23, 2016

Plaintiff, a residential Board of Managers (the “Board”) of a condominium commenced this action against a defendant/unit owner for breach of contract fraud and rescission. In defendant’s application for the purchase of a unit in the Soundings Condominium, she represented to the Board that she would use the unit as a private residence for her child’s nanny and not for any commercial or business purposes. At the time she submitted her purchase application to the Board, defendant also submitted an application to the New York State Office of Children and Family Services for a license to operate a group family day care center in the unit. Unaware of defendant’s application for a license to operate a day care center, the Board waived its right of first refusal. After taking title to the unit, defendant then informed the condominium’s managing agent that she would be running a language program for kids from the unit.

In its complaint, the Board alleged that it was induced into waiving its right of first refusal based on defendant’s representation that the unit would be used only as a private residence. Defendant moved to dismiss the complaint on the sole ground that Section 390(12) of the New York State Social Services Law (“SSL”) prohibits the Board from restricting defendant’s use of the unit as a licensed day care facility. The trial court denied defendant’s motion in its entirety holding that there were issues of fact as to whether the unit is a “dwelling” within the meaning of the SSL, and whether defendant misrepresented to the Board her intended use of the unit. On appeal, the Appellate Division modified the trial court’s decision granting defendant’s motion to the extent that it dismissed only the breach of contract and fraud causes of action.

In upholding defendant’s rescission claim, the Appellate Division held that “damages are not necessary to sustain a cause of action for equitable rescission. Fraud sufficient to support the rescission requires only a misrepresentation that induces a party to enter into a contract resulting in some detriment. Unlike a cause of action in damages on the same ground, proof of scienter and pecuniary loss is not needed. The Appellate Division further held that there was ample evidence on the record that there is triable issue of fact as to whether a misrepresentation was made. The Appellate Division declined defendant’s demand to assess the effect of the SSL on the rights of the parties for two reasons. First, there is no language in the SSL that indicates an intention to abolish a claim for equitable rescission based on the present circumstances. Second, on the record before the Court, ownership of the unit is alleged to have been obtained by deception, and thus the only question is whether such deception warrants rescission. The Board did not take any action to exercise the right of first refusal to trigger the application of SSL.