Ordinarily in real estate sales, the seller’s pre-closing representations do not survive the closing unless the contract expressly states that they do. The situation is different, however, when the seller has made a pre-closing representation about a then-existing fact, like whether the tenants are current in rent. That was the state of facts alleged by the plaintiff/buyer in 260 Mamaroneck Ave v. Guaraglia, Index No. 70017/17, pending before Westchester Commercial Division Justice Gretchen Walsh.
Plaintiff agreed to purchase a building in White Plains from Defendant based on Defendant’s representations that the commercial tenants were current on rent and not receiving abatements. After the deal closed, Plaintiff discovered that a commercial tenant was unable to pay the full monthly rent amount and expected a rent abatement. Plaintiff sued Defendant seeking rescission of the agreement, asserting breach of contract and fraud claims. Defendant moved to dismiss, arguing that its representations concerning the rent roll did not survive closing. Defendant also argued that Plaintiff expressly disclaimed reliance on any representations outside the contract.
Justice Walsh found that the merger doctrine (the legal bar to contractual representations surviving closing) did not require dismissal of the fraudulent concealment or misrepresentation claims. The denial was based on Plaintiff’s allegation that Defendant misrepresented a then-existing fact (the status of rent payments) to induce Plaintiff to purchase the property. Defendant also argued that the fraud claims should be dismissed as duplicative of the contract claims. Justice Walsh disagreed, as Plaintiff was not complaining about Defendant’s failure to perform under the contract, but that a fact contained in the contract was false. It was also significant, Justice Walsh found, that Plaintiff was not seeking merely contract damages, but rescission of the contract.
Plaintiff’s breach of contract claim, however, was barred by the merger doctrine because the parties did not expressly say that representations concerning rent being paid survived closing. Justice Walsh, therefore, dismissed that claim.
Additional takeaway for those practicing before Justice Walsh:
The dismissal of the buyer’s contract claim was without leave to replead, even though the buyer asked for permission to do so. Justice Walsh explained that, at the Preliminary Conference, she asked Plaintiff’s counsel if Plaintiff wished to replead before responding to Defendant’s motion to dismiss. But counsel chose to stand on the pleadings. That fact, and that the merger doctrine was an absolute bar to the contract claims, led Justice Walsh to deny leave to replead those claims.
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