Summary
In Wittenberg, the New York Court of Appeals held that while an action for fraudulently inducing a contract did not lie against a seller because of a disclaimer clause in the contract, the real estate broker was not a party to the contract, "and the disclaimer provision by its express language did not inure to his benefit.
Summary of this case from In re Worldcom, Inc.Opinion
Argued January 9, 1961
Decided March 2, 1961
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, JOHN L. FLYNN, J.
Robert Konove and Gilbert K. Gottlieb for appellants.
Arthur S. Cowen for respondent.
Plaintiff's action against defendant Robinov for fraudulently inducing a contract for the sale of real property will not lie. Under the authority of our decision in Danann Realty Corp. v. Harris ( 5 N.Y.2d 317; see, also, Ernst Iron Works v. Duralith Corp., 270 N.Y. 165), the alleged misrepresentations here were disclaimed with sufficient specificity — except the alleged misrepresentation as to ownership of the kitchen ranges, which could not reasonably be said to come within the ambit of "physical condition or services". That alleged misrepresentation, however, in view of the bill of particulars limiting plaintiff's proof, was not material. Lack of ownership of a single range having a claimed value of $100 could hardly have induced this $32,375 sale.
With regard to defendant Feinberg, the real estate broker, however, he was not a party to the contract of sale, and the disclaimer provision by its express language did not inure to his benefit. The disclaimer provision in the contract constituted, in effect, a limitation upon the agent's authority to bind his principal (see Ernst Iron Works v. Duralith Corp., supra; Flower City Plant Food Co. v. Roberts, 81 App. Div. 249; Waldorf v. Simpson, 15 App. Div. 297). This case, therefore, assumes the posture of a third party allegedly suffering a loss as a result of an agent's unauthorized acts. Recourse, if any, in such case, by way of damages to recoup the loss sustained, may be sought against the agent ( Laska v. Harris, 215 N.Y. 554; Kip v. Howes, 39 How. Prac. 139).
Our statement in the Danann case ( supra) that the legal consequence of the disclaimer provision was to negate reliance was, in essence, only a concise way of saying that as to the seller in that case — the only party involved — no representations ever existed. That being so, there could be no reliance. There was nothing upon which to rely.
In the instant case, the representations — which plaintiff in his complaint alleges were made by the agent — were similarly declared nonexistent by the seller; and the purchaser expressly agreed to consummate the transaction on those terms. Such a declaration in the agency context here presented means, from the seller's point of view, that any agent's representations were unauthorized. An unauthorized representation of an agent does not exist insofar as a principal is concerned. As to the agent, however, the noncontracting party, any unauthorized representation remains real and existent — and if fraudulent he may be subjected to liability.
Accordingly, the order insofar as appealed from by defendant Robinov should be reversed, and the motion for judgment on the pleadings and dismissal of the complaint made on her behalf should be granted. In all other respects, the order appealed from should be affirmed, without costs. The question certified is answered in the negative.
I still believe — as I wrote in dissent in Danann Realty Corp. v. Harris ( 5 N.Y.2d 317, 323) — that a party who has induced another to enter into a contract by means of fraud should not be permitted by insertion of a clause in that contract to shield himself from its consequences. However, since I consider myself bound by the court's decision in that case, I must perforce join in the judgment dismissing the complaint against the defendant owner. But I cannot resist observing that, although the distinction drawn between the liability of the owner and that of the agent strikes me as thoroughly unreal and unreasonable, it is compelled by the court's conclusion in Danann that a person may by verbiage in the contract escape liability for his own fraud.
The judgment entered upon the order of the Appellate Division should, in my view, be reversed so as to dismiss the complaint against the vendor's broker as well as against the vendor. I agree with Judge FULD that "the distinction drawn between the liability of the owner and that of the agent" is "thoroughly unreal and unreasonable". I would have voted the other way in the Danann case if I had considered that such a distinction was compelled by it. Actually, however, instead of this distinction being inherent in the Danann decision, it is inconsistent with it. The point is that where, as here, a purchaser makes a representation in his contract of purchase that he has made his own investigation in regard to specific features of the property and relies on no representations concerning them made by or on behalf of the vendor, he cannot sue anybody in fraud under the ruling in Danann for the reason that he has disclaimed reliance upon any such representation. Absent reliance upon the misrepresentations, there can be no cause of action sounding in fraud against the maker of the misrepresentation or anyone else ( Sager v. Friedman, 270 N.Y. 472). In that case, the court said through LEHMAN, J. (p. 479): "A false representation does not, without more, give rise to a cause of action, either at law or in equity, in favor of the person to whom it is addressed. To give rise, under any circumstances, to a cause of action, either in law or equity, reliance on the false representation must result in injury."
The Danann decision was not based upon contracting away a cause of action in fraud by promises or covenants which are charged with having been given as a result of fraud. If that had been its rationale, Judge FULD'S dissenting opinion would have prevailed. The fraud cause of action was defeated, not on the basis that it was contracted out of existence, but that the purchaser had, beyond contradiction, disclaimed reliance upon any representation of the existence of the very facts concerning which he later claimed to have been deceived to his injury.
That this was the theory of Danann appears from the following statement in Judge BURKE'S opinion at pages 320-321: "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 upon these contrary oral representations ( Cohen v. Cohen [ 1 A.D.2d 586, affd. 3 N.Y.2d 813], supra)."
If, under the rationale of the Danann decision, a plaintiff is defeated for the reason that he did not rely upon the factual misrepresentations alleged, it can make no difference whether the misrepresentations were voiced by the principal or by his agent. Under familiar principles, no cause of action lies in fraud without reliance on the misrepresentations, even in an action against the person by whom they were uttered. I do not understand how plaintiff can be heard to assert that he did not rely upon these representations in his dealings with the vendor, from whom he bought the property, but that he did rely on them as against the vendor's broker.
The judgment appealed from should be reversed and the complaint dismissed, with costs to appellant in this court and in the Appellate Division.
Judges BURKE and FOSTER concur with Judge FROESSEL; Judge FULD concurs in a separate opinion; Judge VAN VOORHIS dissents in part in a separate opinion in which Chief Judge DESMOND and Judge DYE concur.
Order, insofar as appealed from by defendant Robinov, reversed and the judgment of Special Term reinstated as to her, without costs. In all other respects, order appealed from affirmed, without costs. Question certified in the negative.