Danann Realty Corp. v. Harris | 184 NYS2d 599 | March 05, 1959 | Joseph William Singer

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Danann Realty Corp. v. Harris

by Joseph William Singer
1

184 N.Y.S.2d 599
5 N.Y.2d 317, 157 N.E.2d 597

2

DANANN REALTY CORP., Respondent,
v.
David A. HARRIS et al., Appellants.

3

Court of Appeals of New York.
March 5, 1959.

4

[184 N.Y.S.2d 600] [157 N.E.2d 598] [5 N.Y.2d 318] George E. Netter, Morris A. Marks and Milton Waxenfeld, New York City, for appellants.

5

David Haar, New York City, for respondent.

6

[5 N.Y.2d 319] BURKE, Judge.

7

The plaintiff in its complaint alleges, insofar as its first cause of action is concerned, that it was induced to enter into a contract of sale of a lease of a building held by defendants because of oral representations, falsely made by the defendants, as to the operating expenses of the building and as to the profits to be derived from the investment. Plaintiff, affirming the contract, seeks damages for fraud.

8

[184 N.Y.S.2d 601] At Special Term, the Supreme Court sustained a motion to dismiss the complaint. On appeal, the Appellate Division unanimously reversed the order granting the dismissal of the complaint. Thereafter the Appellate Division granted leave to appeal, certifying the following question: “Does the first cause of action in the complaint state facts sufficient to constitute a cause of action?”

9

The basic problem presented is whether the plaintiff can possibly establish from the facts alleged in the complaint (together with the contract which was annexed to the complaint) reliance upon the misrepresentations (Cohen v. Cohen, 1 A.D.2d 586, 151 N.Y.S.2d 949, affirmed 3 N.Y.2d 813, 166 N.Y.S.2d 10).

10

We must, of course, accept as true plaintiff's statements that during the course of negotiations defendants misrepresented the operating expenses and profits. Such misrepresentations are undoubtedly material. However, the provisions of the written contract which directly contradict the allegations of oral representations are of equal importance in our task of reaching a decisive answer to the question posed in these cases.

11

[5 N.Y.2d 320] The contract, annexed to and made a part of the complaint, contains the following language pertaining to the particular facts of representations:

12

"The Purchaser has examined the premises agreed to be sold and is familiar with the physical condition thereof. The Seller has not made and does not make any representations as to the physical condition, rents, leases, expenses, operation or any other matter or thing affecting or related to the aforesaid premises, except as herein specifically set forth, and the Purchaser hereby expressly acknowledges that no such representations have been made, and the Purchaser further acknowledges that it has inspected the premises and agrees to take the premises 'as is' . . . It is understood and agreed that all understandings and agreements heretofore had between the parties hereto are merged in this contract, which alone fully and completely expresses their agreement, and that the same is entered into after full investigation, neither party relying upon any statement or representation, not embodied in this contract, made by the other. The Purchaser has inspected the buildings standing on said premises and is thoroughly acquainted with their condition." (Emphasis supplied.)

13

Were we dealing solely with a general and vague merger clause, our task would be simple. A reiteration of the fundamental principle that a general merger clause is ineffective to exclude parol evidence to show fraud in inducing the contract would then be dispositive of the issue (Sabo v. Delman, 3 N.Y.2d 155, 164 N.Y.S.2d 714). To put it another way, where the complaint states a cause of action for fraud, the parol evidence rule is not a bar to showing the fraud either in [184 N.Y.S.2d 602] the inducement or in the execution despite an omnibus statement that the written instrument embodies the [157 N.E.2d 599] whole agreement, or that no representations have been made. Bridger v. Goldsmith, 143 N.Y. 424, 38 N.E. 458; Angerosa v. White Co., 248 App.Div. 425, 290 N.Y.S. 204, affirmed 275 N.Y. 524, 11 N.E.2d 325; Jackson v. State of New York, 210 App.Div. 115, 205 N.Y.S. 658, affirmed 241 N.Y. 563, 150 N.E. 566; 3 Williston, Contracts (Rev. ed.), § 811A.

14

Here, however, plaintiff has in the plainest language announced and stipulated that it is not relying on any representations as to the very matter as to which it now claims it was defrauded. Such a specific disclaimer destroys the allegations in plaintiff's complaint that the agreement was executed in reliance [5 N.Y.2d 321] upon these contrary oral representations (Cohen v. Cohen, supra). The Sabo case, supra, dealt with the usual merger clause. The present case, as the Cohen case, additionally, includes a disclaimer as to specific representations.

15

This specific disclaimer is one of the material distinctions between this case and Bridger v. Goldsmith, supra, and Crowell-Collier Pub. Co. v. Josefowitz, 5 N.Y.2d 998, 184 N.Y.S.2d 859. In the Bridger case, the court considered the effect of a general disclaimer as to representations in a contract of sale, concluding that the insertion of such a clause at the insistence of the seller cannot be used as a shield to protect him from his fraud. Another material distinction is that nowhere in the contract in the Bridger case is there a denial of reliance on representations, as there is here. Similarly, in Crowell-Collier Pub. Co. v. Josefowitz, supra, only a general merger clause was incorporated into the contract of sale. Moreover, the complaint there additionally alleged that further misrepresentations were made after the agreement had been signed, but while the contract was held in escrow and before it had been finally approved.

16

Consequently, this clause, which declares that the parties to the agreement do not rely on specific representations not embodied in the contract, excludes this case from the scope of the Jackson, Angerosa, Bridger and Crowell-Collier cases, supra. See Foundation Co. v. State of New York, 233 N.Y. 177, 135 N.E. 236.

17

The complaint here contains no allegations that the contract was not read by the purchaser. We can fairly conclude that plaintiff's officers read and understood the contract, and that they were aware of the provision by which they aver that plaintiff did not rely on such extra-contractual representations. It is not alleged that this provision was not understood, or that the provision itself was procured by fraud. It would be unrealistic to ascribe to plaintiff's officers such incompetence that they did not understand what they read and signed. Cf. Ernst Iron Works v. Duralith Corp., 270 N.Y. 165, 171, 200 N.E. 683, 685. [184 N.Y.S.2d 603] Although this court in the Ernst case discounted the merger clause as ineffective to preclude proof of fraud, it gave effect to the specific disclaimer of representation clause, holding that such a clause limited the authority of the agent, and hence, [5 N.Y.2d 322] plaintiff had notice of his lack of authority. But the larger implication of the Ernst case is that, where a person has read and understood the disclaimer of representation clause, he is bound by it. The court rejected, as a matter of law, the allegation of plaintiffs “that they relied upon an oral statement made to them in direct contradiction of this provision of the contract.” The presence of such a disclaimer clause “is inconsistent with the contention that plaintiff relied upon the misrepresentation, and was led thereby to make the contract.” Kreshover v. Berger, 135 App.Div. 27, 28, 119 N.Y.S. 737, 738.

18

It is not necessary to distinguish seriatim the cases in other jurisdictions as they are not, in the main, in point or in, a few instances, clash with the rule followed in the State of New York. The marshaling of phrases plucked from various opinions and references to generalizations, with which no one disagrees, cannot subvert the fundamental precept that the asserted [157 N.E.2d 600] reliance must be found to be justifiable under all the circumstances before a complaint can be found to state a cause of action in fraud. We must keep in mind that "opinions must be read in the setting of the particular cases and as the product of preoccupation with their special facts" (Freeman v. Hewit, 329 U.S. 249, 252, 67 S.Ct. 274, 276, 91 L.Ed. 265). When the citations are read in the light of this caveat, we find that they are generally concerned with factual situations wherein the facts represented were matters peculiarly within the defendant's knowledge, as in the cases of Sabo v. Delman, supra, and Jackson v. State of New York, supra.

19

The general rule was enunciated by this court over a half a century ago in Schumaker v. Mather, 133 N.Y. 590, 596, 30 N.E. 755, 757, that “if the facts represented are not matters peculiarly within the party's knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth, or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations. (Baily v. Merrell, Bulstrode's Rep.Part III, p. 94; Slaughter's Adm'r v. Gerson, 13 Wall. (379) 383, 20 L.Ed. 627; Chrysler v. Canaday, 90 N.Y. 272.)”

20

Very recently this rule was approved as settled law by this court in the case of Sylvester v. Bernstein, 283 App.Div. 333, 127 N.Y.S.2d 746, affirmed 307 N.Y. 778, 121 N.E.2d 616.

21

[184 N.Y.S.2d 604] [5 N.Y.2d 323] In this case, of course, the plaintiff made a representation in the contract that it was not relying on specific representations not embodied in the contract, while, it now asserts, it was in fact relying on such oral representations. Plaintiff admits then that it is guilty of deliberately misrepresenting to the seller its true intention. To condone this fraud would place the purchaser in a favored position. Cf. Riggs v. Palmer, 115 N.Y. 506, 511, 512, 22 N.E. 188, 190, 5 L.R.A. 340. This is particularly so, where, as here, the purchaser confirms the contract, but seeks damages. If the plaintiff has made a bad bargain he cannot avoid it in this manner.

22

If the language here used is not sufficient to estop a party from claiming that he entered the contract because of fraudulent representations, then no language can accomplish that purpose. To hold otherwise would be to say that it is impossible for two businessmen dealing at arm's length to agree that the buyer is not buying in reliance on any representations of the seller as to a particular fact.

23

Accordingly, the order of the Appellate Division should be reversed and that of Special Term reinstated, without costs. The question certified should be answered in the negative.

24

FULD, Judge. (dissenting). If a party has actually induced another to enter into a contract by means of fraud and so the complaint before us alleges I conceive that language may not be devised to shield him from the consequences of such fraud. The law does not temporize with trickery or duplicity, and this court, after having weighed the advantages of certainty in contractual relations against the harm and injustice which result from fraud, long ago unequivocally declared that “a party who has perpetrated a fraud upon his neighbor may (not) contract with him, in the very instrument by means of which it was perpetrated, for immunity against its consequences, close his mouth from complaining of it, and bind him never to seek redress. Public policy and morality are both ignored if such an agreement can be given effect in a court of justice. The maxim that fraud vitiates every transaction would no longer be the rule, but the exception.” Bridger v. Goldsmith, 143 N.Y. 424, 428, 38 N.E. 458, [157 N.E.2d 601] 459. It was a concern for similar considerations of policy which persuaded Massachusetts to repudiate the contrary rule which it had initially espoused. The [5 N.Y.2d 324] same public policy that in general sanctions the avoidance of a promise obtained by deceit, wrote that state's Supreme Judicial Court in Bates v. Southgate, (308 Mass. 170, 182), 31 N.E.2d 551, 558, 133 A.L.R. 1349, “strikes down all attempts to circumvent that policy by means of contractual devices. In the realm of fact it is [184 N.Y.S.2d 605] entirely possible for a party knowingly to agree that no representations have been made to him, while at the same time believing and relying upon representations which in fact have been made and in fact are false but for which he would not have made the agreement. To deny this possibility is to ignore the frequent instances in everyday experience where parties accept . . . and act upon agreements containing . . . exculpatory clauses in one form or another, but where they do so, nevertheless, in reliance upon the honesty of supposed friends, the plausible and disarming statements of salesmen, or the customary course of business. To refuse relief would result in opening the door to a multitude of frauds and in thwarting the general policy of the law.”

25

It is impossible, on either principle or reasoning, to distinguish the present case from the many others which this court has decided. See, e. g., Bridger v. Goldsmith, 143 N.Y. 424, 428, 38 N.E. 458, 459, supra; Jackson v. State of New York, 210 App.Div. 115, 205 N.Y.S. 658, affirmed 241 N.Y. 563, 150 N.E. 556; Ernst Iron Works v. Duralith Corp., 270 N.Y. 165, 169, 200 N.E. 683; Angerosa v. White Co., 248 App.Div. 425, 431, 290 N.Y.S. 204, 213, affirmed 275 N.Y. 524, 11 N.E.2d 325; Sabo v. Delman, 3 N.Y.2d 155, 162, 164 N.Y.S.2d 714, 718; Crowell-Collier Pub. Co. v. Josefowitz, 5 N.Y.2d 998, 184 N.Y.S.2d 859. As far back as 1894, we decided, in the Bridger case, 143 N.Y. 424, 38 N.E. 458, 459, supra, that the plaintiff was not prevented from bringing an action for fraud, based on oral misrepresentations, even though the written contract provided that it was “understood and agreed” that the defendant seller had not made, “for the purpose of inducing the sale . . . or the making of this agreement, any statements or representations . . . other than” the single one therein set forth (143 N.Y. at pages 426-427, 38 N.E. at page 459). And, just today, we are holding, in the Crowell-Collier Publishing case, that the plaintiffs were not barred from suing the defendants for fraud in inducing them to make the contract, despite its recital that [5 N.Y.2d 325] “This Agreement constitutes the entire understanding between the parties, (and) was not induced by any representations . . . not herein contained.”

26

In addition, in Jackson v. State of New York, 210 App.Div. 115, 205 N.Y.S. 658, affirmed 241 N.Y. 563, 150 N.E. 556, supra, the contract provided that the contract (plaintiff's predecessor in interest) agreed that he had satisfied himself by his own investigation regarding all the conditions of the work to be done and that his conclusion to enter into the contract was based solely upon such investigation [184 N.Y.S.2d 606] and not upon any information or data imparted by the State.

27

It was held that even this explicit disavowal of reliance did not bar the plaintiff from recovery. In answering the argument that the provision prevented proof either of misrepresentation by the defendant or reliance on the part of the plaintiff, the Appellate Division, in an opinion approved by this court, wrote:

28

“A party to a contract cannot, by misrepresentation of a material fact, induce the other party to the contract to enter into it to his damage, and then protect himself from the legal effect of such misrepresentation by inserting in the [157 N.E.2d 602] contract a clause to the effect that he is not to be held liable for the misrepresentation which induced the other party to enter into the contract. The effect of misrepresentation and fraud cannot be thus easily avoided” (210 App.Div. at pages 119-120, 205 N.Y.S. at page 661).

29

Although the clause in the contract before us may be differently worded from those in the agreements involved in the other cases decided by this court, it undoubtedly reflects the same thought and meaning, and the reasoning and the principles which the court deemed controlling in those cases are likewise controlling in this one. Their application, it seems plain to me, compels the conclusion that the complaint herein should be sustained and the plaintiff accorded a trial of its allegations.

30

It is said, however, that the provision in this contract differs from those heretofore considered in that it embodies a specific and deliberate exclusion of a particular subject. The quick answer is that the clause now before us is not of such a sort. On the contrary, instead of being limited, it is all-embracing, encompassing every representation that a seller could possibly make about the property being sold and, instead of representing [5 N.Y.2d 326] a special term of a bargain, is essentially "boiler plate." See Contract of Sale, Standard N.Y.B.T.U. Form 8041; Bicks, Contracts for the Sale of Realty (1956 ed.), pp. 79-80, 94-95. The more elaborate verbiage in the present contract cannot disguise the fact that the language which is said to immunize the defendants from their own fraud is no more specific than the general merger clause in Sabo v. Delman, 3 N.Y.2d 155, 164 N.Y.S.2d 714, supra, and far less specific than the provision dealt with in the Jackson case, 210 App.Div. 115, 205 N.Y.S. 58, affirmed 241 N.Y. 563, 150 N.E. 556, supra, or in Crowell-Collier.

31

In any event, though, I cannot believe that the outcome of a case such as this, in which the defendant is charged with fraud, should turn on the particular language employed in the contract. As Judge Augustus Hand, writing for the Federal Court of Appeals, observed, “the ingenuity of draftsmen is sure to keep pace with the demands of wrongdoers, and if a deliberate fraud may be shielded by a clause in a contract that the [184 N.Y.S.2d 607] writing contains every representation made by way of inducement, or that utterances shown to be untrue were not an inducement to the agreement,” a fraudulent seller would have a simple method of obtaining immunity for his misconduct. Arnold v. National Aniline & Chem. Co., 2 Cir., 20 F.2d 364, 369.

32

The guiding rule that fraud vitiates every agreement which it touches has been well expressed not only by the courts of this state, but by courts throughout the country and by the House of Lords in England. And, in recognizing that the plaintiff may assert a cause of action in fraud, the courts have not differentiated between the type or form of exculpatory provision inserted in the contract. It matters not, the cases demonstrate, whether the clause simply recites that no representations have been made or more fully stipulates that the seller has not made any representations concerning certain enumerated subjects and that the purchaser has made his own investigation and has not relied upon any representation by the seller, not embodied in the writing. See, e. g., Sabo v. Delman, 3 N.Y.2d 155, 161-162, 164 N.Y.S.2d 714, 717-718, supra; Ernst Iron Works v. Duralith Corp., 270 N.Y. 165, 169, 200 N.E. 683, 684, supra; Bridger v. Goldsmith, 143 N.Y. 424, 428, 38 N.E. 458, 459, supra; Angerosa v. White Co., 248 App.Div. 425, 431, 290 N.Y.S. 204, affirmed 275 N.Y. 524, 11 N.E.2d 325, supra; Jackson v. State of New York, 210 App.Div. 115, 205 N.Y.S. 658, affirmed 241 N.Y. 563, 150 N.E. 556, supra; Pearson [5 N.Y.2d 327] & Son v. Dublin Corp., (1907) A.C. 351, 353-354, 362; Arnold v. National Aniline & Chem. Co., [157 N.E.2d 603] 2 Cir., 20 F.2d 364, 369, supra; Lutfy v. R. D. Roper & Sons Motor Co., 57 Ariz. 495, 506, 115 P.2d 161; Omar Oil & Gas Co. v. MacKenzie Oil Co., 33 Del. 259, 289-290, 138 A. 392; Jordan v. Nelson, Iowa, 178 N.W. 544; Bryant v. Troutman, Ky., 287 S.W.2d 918, 921; Bates v. Southgate, 308 Mass. 170, 182, 31 N.E.2d 551, 133 A.L.R. 1349, supra; Ganley Bros., Inc., v. Butler Bros. Bldg. Co., 170 Minn. 373, 376-377, 212 N.W. 602, 56 A.L.R. 1; Brown v. Ohman, Miss., 42 So.2d 209, 212-213; Martin v. Harris, 121 Neb. 372, 236 N.W. 914; Blacknall v. Rowland, 108 N.C. 554, 557-558, 13 S.E. 191; Pennsylvania Turnpike Comm. v. Smith, 350 Pa. 355, 361-362, 39 A.2d 139; Dallas Farm Mach. Co. v. Reaves, Tex., 307 S.W.2d 233, 239; Dieterich v. Rice, 115 Wash. 365, 197 P. 1; see, also, 3 Williston, Contracts (Rev.ed., 1936), §§ 811, 811A; Corbin, Contracts (1951), Vol. 3, § 578; Vol. 6, § 1516; Restatement of Contracts, § 573.

33

In England, in the Pearson case, (1907) A.C. 351, supra, the contract to perform certain construction work provided that the contractor “should satisfy himself” as to various specified items connected with the job and that the defendant corporation [184 N.Y.S.2d 608] “did not hold itself responsible for the accuracy of (such) information” (p. 351).

34

After performing the contract, the plaintiffs brought a deceit action, claiming damages for false representations as to the very items concerning which they had agreed they would satisfy themselves. The House of Lords reversed the judgment directed for the defendants and held that the action could be maintained; the Lord Chancellor, after noting that “The contract contained clauses . . . to the effect that the contractors must not rely on any representation…but must ascertain and judge of the facts for themselves”' (p. 353), went on to say (pp. 353-354):“Now it seems clear that no one can escape liability for his own fraudulent statements by inserting in a contract a clause that the other party shall not rely upon them.” Lord Ashbourne, concurring with the Lord Chancellor, pointed out that the clause relied upon “might in some cases be part of a fraud, and might advance and disguise a fraud” (p. 360) and Lord Hereford, also concurring, declared (p. 362) that, if the “protecting clause” be inserted fraudulently,

35

[5 N.Y.2d 328] “When the fraud succeeds, surely those who designed the fraudulent protection cannot take advantage of it. Such a clause would be good protection against any mistake or miscalculation, but fraud vitiates every contract and every clause in it.”

36

In the Dieterich case, 115 Wash. 365, 197 P. 1, supra, the contract contained the provision that

37

“This land is sold to (the plaintiff buyer) . . . with the understanding that he has personally and carefully inspected said premises, and is purchasing the same by said inspection, and not from any other sayings or inducements by (the seller) . . . and there has been no other inducements other than recited herein.”

38

Despite this explicit disclaimer of reliance and inducement, the Washington Supreme Court decided that the recital did not bar the plaintiff from showing “the fraudulent nature of the contract” (115 Wash. at page 373, 197 P. at page 3), and, in the course of its opinion, observed (115 Wash. at page 368, 197 P. at page 2) that the contention of the defendants to the contrary was “effectually answered by the Court of Appeals of New York, in the case of Bridger v. Goldsmith, 143 N.Y. 424, 38 N.E. 458.”

39

In Martin v. Harris, 121 Neb. 372, 236 N.W. 914, 915, supra, the agreement recited:

40

[184 N.Y.S.2d 609] “There have been no representations of the reasonable value of any of the [157 N.E.2d 604] properties herein described made by or to either party to this contract. Each party is relying upon his own judgment of such values after a personal inspection of the properties.”

41

The plaintiff, alleging that the defendant fraudulently misrepresented the value of the property, sought damages. Again, despite the explicit statement that such a representation had not been made and the specific disavowal of reliance thereon, the court upheld the plaintiff's right to bring the action (121 Neb. at page 376, 236 N.W. 914).

42

In the Ganley case, 170 Minn. 373, 212 N.W. 602, supra, too, the disclaimer was quite specific, reading in this way:

43

“The (plaintiff) contractor has examined the said contracts . . . and the specifications and plans forming a part thereof, and is familiar with the location [5 N.Y.2d 329] of said work and the conditions under which the same must be performed . . . and is not relying upon any statement made by the company in respect thereto.”

44

In deciding that a defendant could not protect himself against liability for fraud by such a provision or, indeed, by any language, the court wrote in no uncertain terms (170 Minn. at page 377, 212 N.W. at page 603):

45

“The law should not, and does not, permit a covenant of immunity to be drawn that will protect a person against him own fraud. Such is not enforceable because of public policy. Industrial & General Trust, Ltd. v. Tod, 180 N.Y. 215, 73 N.E. 7. Language is not strong enough to write such a contract. Fraud destroys all consent. It is the purpose of the law to shield only those whose armor embraces good faith. Theoretically, if there is no fraud, the rule we announce is harmless. If there is fraud, the rule we announce is wholesome. Whether the rule is effective depends upon the facts. Public interest supports our conclusion.”

46

And, said the court, while the argument that a party should have the right “to let his work to a certain person because the other will therein agree that he relies and acts only upon his own knowledge and not upon the representations of his adversary”, might on first thought seem plausible, it does not stand analysis. “It may be desirable in dealing with unscrupulous persons to have this clause as a shield against wrongful charges of fraud. But if there is no fraud that fact will be established on the trial. The merits of defendant's claim reach only the expense and annoyance of litigation. But every party should have his day in court. [184 N.Y.S.2d 610] . . . We are unable to formulate a rule of law sustaining defendant's contention which would not at the same time give opportunities for the commission of fraud for which the wronged party would have no redress” (170 Minn. at page 376, 212 N.W. at page 603).

47

And in the Lutfy case, 57 Ariz. 495, 115 P.2d 161, 166, supra, the contract of sale contained as specific a disavowal of reliance upon a particular representation as could be written:

48

“It is understood and agreed that there is no representation or warranty that the 'year model' of said [5 N.Y.2d 330] property, as hereinbefore stated, correctly states the year in which said property was manufactured, but is merely used by the parties hereto for convenience in describing it. . . . Purchaser agrees that he has made an independent investigation of the property and has relied solely upon his own investigation with reference thereto in entering into this contract, and has placed no reliance and acted upon no representations or warranties upon the part of the Seller.”

49

The plaintiff, suing for damages, alleged that the defendant had falsely represented the year model of the automobile which he purchased, and the high court of Arizona [157 N.E.2d 605] held that he could prove that such a representation had been made and that he had relied upon it, notwithstanding the contract's most explicit recital to the contrary (57 Ariz. at page 506, 115 P.2d at page 166):

50

“If binding upon (plaintiff) appellant, it would protect appellee, from the consequences of any fraudulent misrepresentations it might have made to appellant to induce him to sign the contract and, as we see it, any provision in a contract making it possible for a party thereto to free himself from the consequences of his own fraud in procuring its execution is invalid and necessarily constitutes no defense.”

51

The cases cited all upholding the sufficiency of a complaint based on fraud no matter how the exculpatory language in the contract is phrased show how firmly established the rule is, and the passages quoted show how compelling are the reasons for the rule. Nor is their force or value weakened or impaired by the decisions upon which the court now appears to rely. Except for Cohen v. Cohen, 3 N.Y.2d 813, 166 N.Y.S.2d 10, no one of them has anything to do with the adequacy of the complaint as a pleading; two are concerned with the proof adduced at the trial (Schumaker v. Mather, 133 N.Y. 590, 30 N.E. 755; Ernst Iron Works v. Duralith Corp., 270 N.Y. 165, 200 N.E. 683, supra, while the third deals with the subject of res judicata (Sylvester v. Bernstein, 283 App.Div. 333, 127 N.Y.S.2d 746, affirmed 307 N.Y. 778, 121 n.E.2d 616).

52

[184 N.Y.S.2d 611] In the Ernst Iron Works, case, the appeal was, as I have noted, taken after trial and was concerned with the proof and not, as is the present appeal, with the sufficiency of the complaint. [5 N.Y.2d 331] The contract contained both a blanket merger clause and a recital that the defendant “makes no representation regarding previous sales” (270 N.Y. 165, 200 N.E. 683) in Buffalo, where the plaintiff did business. Notwithstanding that provision, the plaintiff claimed that he had relied upon a representation by the defendant's salesman that the product had not been sold in that city, and testimony to that effect was received at the trial. The court did reverse the judgment for the plaintiff, but not on any theory that the specific disclaimer clause barred suit or that the evidence was inadmissible because of it. It was the court's conclusion, based on the evidence adduced at the trial, first, that the false representation attributed to the defendant had not been made (270 N.Y. at pages 169-170, 200 N.E. 683, 684); second, that, in any event, the defendant's salesman did not have authority to make such a representation and the plaintiff knew this (270 N.Y. at pages 170-171, 200 N.E. 684-685); and, finally, that “it (was) clear (from the proof at the trial) that the plaintiff did not rely upon the statement” (270 N.Y. at pages 171-172, 200 N.E. at page 685). And most significantly, the court did not question the general principle but affirmed it, stating that “A rogue cannot protect himself from liability for his fraud by inserting a printed clause in his contract” (270 N.Y. at page 169, 200 N.E. at page 684.)

53

As to Cohen v. Cohen (3 N.Y.2d 813, 166 N.Y.S.2d 11) I dissented from the decision there made and still consider it to have been wrongly decided. Constrained to accept it, I do so, but I cannot subscribe to extending its application beyond its own peculiar fact setting. A husband and wife had separated; there were bitter mutual recriminations followed by three separate lawsuits. The parties were ultimately reconciled and their lawyers drew a settlement agreement, which they executed, reciting that the husband had not made any representations “as to the continuation of the marital status.” The wife sometime later brought another action, alleging that her husband had falsely represented that he 'would effect a reconciliation with (her), return to live with her . . . permanently, and permanently resume their [157 N.E.2d 606] marital relationship.” As is quite evident, the Cohen case is a most unusual one not only because it involved an agreement designed to settle pending marital litigation, but because of the extraordinary and promissory nature of the misrepresentation alleged. Indeed, the only resemblance claimed for the cases that is, for Cohen and the present one is that in both [5 N.Y.2d 332] there is a specific disclaimer by the plaintiff of the very representations charged against the defendant. However, as noted above (5 N.Y.2d at pages 325-326, 184 [184 N.Y.S.2d 612] N.Y.S.2d 606), since the provision in the contract before us encompasses every representation which a seller of real estate could possibly have made, including those alleged, even the asserted similarity does not in fact exist.

54

Contrary to the intimation in the court's opinion (5 N.Y.2d at page 323, 184 N.Y.S.2d 604), the nonreliance clause cannot possibly operate as an estoppel against the plaintiff. Essentially equitable in nature, the principle of estoppel is to be invoked to prevent fraud and injustice, not to further them. The statement that the representations in question were not made was, according to the complaint, false to the defendant's knowledge. Surely, the perpetrator of a fraud cannot close the lips of his victim and deny him the right to state the facts as they actually exist. Indeed, the contention that a person, such as the defendant herein, could urge an estoppel was considered and emphatically disposed of in Bridger v. Goldsmith with this statement:

55

“The question now is whether (the no-representation non-inducement clause) can be given the effect claimed for it by the learned counsel for the defendant, to preclude the plaintiff from alleging fraud in the sale, and pursuing in the courts the remedies which the law gives in such cases. It cannot operate by way of estoppel, for the obvious reason that the statements were false to the defendant's knowledge. He may, indeed, have relied upon its force and efficacy to protect him from the consequences of his own fraud, but he certainly could not have relied upon the truth of any statement in it. A mere device of the guilty party to a contract, intended to shield himself from the results of his own fraud practiced upon the other party, cannot well be elevated to the dignity and importance of an equitable estoppel.”

56

(143 N.Y. 424, 427-428, 38 N.E. 458, 459, emphasis supplied; see, also, Angerosa v. White Co., 248 App.Div. 425, 433-434, 290 N.Y.S. 204, 215-216, affirmed 275 N.Y. 524, 11 N.E.2d 325, supra).

57

The rule heretofore applied by this court presents no obstacle to honest business dealings, and dishonest transactions ought not to receive judicial protection. The clause in the contract before us may lend support to the defense and render the plaintiff's task of establishing its claim more difficult, but it should not be held to bar institution of an action for fraud. Whether [5 N.Y.2d 333] the defendants made the statements attributed to them and, if they did, whether the plaintiff relied upon them, whether, in other words, the defendants were guilty of fraud, are questions of fact not capable of determination on the pleadings alone. The plaintiff in entitled to its day in court.

58

CONWAY, C. J., and DESMOND, DYE, FROESSEL and VAN VOORHIS, JJ., concur with BURKE, J. FULD, J., dissents in a separate opinion.

59

Order reversed, etc.

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Annotated Case Information

June 03, 2014

"Danann Realty Corp. v. Harris"

Danann Realty Corp. v. Harris

Author Stats

Joseph William Singer

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