In preparing to purchase a condo unit, the buyer informed the condo board that she was not going to conduct any business in that unit. After she closed, the buyer sought board approval to renovate the unit to accommodate a children’s play group. The condo board filed an action seeking to rescind the contract based on fraud and breach of contract.
The buyer claimed that because State law allows a day care facility in a condo unit, which was to be the actual use of the unit, the board could not point to damages as a result of the buyer’s fraud which was required to recover the unit. The First Department rejected that argument, finding that equitable rescission based on fraud requires no damages, only a misrepresentation that induces the other party to enter into a contract “resulting in some detriment.” Even intent to defraud is unnecessary for rescission.
With that, the Court granted the board’s request to rescind the contract.
Follow this site for a recent decision concerning a case where fraud was alleged but not specific damages and which resulted in dismissal. That First Department case held, over a dissent, that without damages fraudulent activity does not create liability. Notable is that the Second Department disagrees with this outcome, and does not require an allegation of specific damages to claim actionable fraud. More on both of these cases to come.
Board of Managers of the Soundings Condominium v. Foerste