Client Advisory - February, 2004 PDF Misrepresentation Claim in Cooperative Purchase Agreement Not Barred by "Merger" Clause Lawyers routinely include in contracts so-called "merger" clauses, to the effect that the signed document represents the entire agreement between the parties, who have not relied on any other oral or written promises or representations. Such language, however, is not complete protection against claims based on alleged fraudulent statements. In Purches v. Carroll, NYLJ December 3, 2003, p. 22, col. 1 (Sup. Ct. N.Y. Co.), this principle was applied to the purchase of a cooperative apartment. In Purches, the plaintiff claimed that before signing a contract to buy the apartment, he told the seller and the seller's broker that he would only buy if the Board of Directors would permit him to construct an enclosed terrace. The seller's broker informed him that they would be able to obtain the Board's approval. After signing the contract, however, it appeared that there was insufficient space for the proposed structure and the Board would not approve the renovation plans. In the ensuing litigation, the buyer moved for a declaration of fraud and rescission of the contract; the seller and the broker moved to dismiss the case; and the seller moved to cancel the sale, but release to him from escrow the buyer's contract deposit. The court denied all the motions and directed the case to proceed. It found that the "general boilerplate" merger clause, in which the purchaser acknowledged having entered the contract "without relying on any promises, statements, estimates, representations, warranties, conditions or other inducements, express or implied, oral or written, made by any person, not expressly set forth herein," did not shield the seller from judicial inquiry into a claim of fraud. A contracting party, the court held, can only be estopped from claiming fraud in the inducement as to a specific matter if the merger clause specifically refers to that matter. Accordingly, the fraud claim survived against the seller. Since they were not parties to the written contract and were not protected by the merger clause, the case proceeded against the broker and his firm as well. Lead Paint Insurer's Exposure Multiplied Although it arose in a squabble among insurance companies over how to allocate responsibility for an agreed settlement with victims of lead paint poisoning, the court's recent interpretation of policies in National Union Fire Insurance Company v. Farmington Casualty Co., NYLJ October 22, 2003, p. 22, col. 1 (Sup. Ct. N.Y. Co.), could also affect disputes between landlords and their insurers. Three insurers had provided coverage at different times to a landlord who had been sued by four children, who claimed to have suffered lead paint poisoning while living in the landlord's building over a period of seven years. The insurers agreed to settle the underlying action for $2,875,000 and further agreed among themselves to allocate the payment pro rata according to the number of months each insurer provided coverage (weighted to reflect the number of children residing in the apartment each month). One of the carriers, however, Farmington Casualty Co., argued that since the alleged injury arose from a single continuous "occurrence," its share could not exceed the $1,000,000 maximum limit of liability in its policy, even though it had provided coverage for two years. This issue brought the insurers into a separate lawsuit with each other. The court held that a businessman buying insurance would reasonably expect that the $1,000,000 policy limitation was per policy period and that since Farmington insured the premises for two years, it had provided coverage of up to $2,000,000. Otherwise, the court reasoned, an insurer who had provided coverage and accepted premiums for even the entire seven year period could argue that its liability did not exceed the stated one year maximum. Under such an interpretation, the landlord would be getting no more coverage for six extra years of premiums and would be better off changing its carriers every year. The Court therefore directed Farmington to pay its full pro rata share of the settlement, which exceeded the $1,000,000 limitation. The Disapproval of Apartment Transfers The right of a cooperative board of directors to disapprove the proposed transfer of a unit is a frequent source of controversy and litigation. In Simon v. 160 West End Avenue Corp., NYLJ September 3, 2003, p. 18, col. 3 (Sup. Ct. N.Y. Co), a tenant-shareholder's prior application to transfer her apartment to her lawyer and the lawyer's ex-husband (an investigator) had been disapproved by the board. Upon the shareholder's death, however, her will bequeathed them her apartment and named the lawyer as executrix. The board denied applications by the estate for a transfer to the named beneficiaries, allegedly based on derogatory statements by one of the directors, both before and after the shareholder's death, to the effect that the proposed transferees had preyed on the elderly, including the shareholder, by influencing such persons to turn over property to them. The two beneficiaries and the estate then sued the board, the director and the managing agent under multiple theories, including breach of fiduciary duty, defamation, tortious interference with contract and "vicious and malicious" actions. The court dismissed the entire complaint. It held that the board's fiduciary duty was to its shareholder's estate, rather than to the proposed transferees, and that a cooperative board has "the absolute right for any reason or no reason to withhold its approval of an applicant, provided the board does not act in bad faith or engage in illegal discriminatory practices." The alleged conduct constituted neither. The court recognized that some of the director's alleged statements could have been slanderous per se but, without reaching the issue of whether they were privileged, held they were either barred by the one year statute of limitations on defamation claims or did not sufficiently specify the persons to whom the statements were made. It also dismissed the plaintiffs' claim for "intentional infliction of emotional distress," holding that the alleged conduct was not so "outrageous" as to be "intolerable in a civilized society." IMPORTANT NOTE: The material in this newsletter is provided for information purposes only and should not be construed as legal advice. Because the particular facts and circumstances of every situation differs, you should not act or refrain from acting on the basis of this information without consulting an attorney. |
