Caveat Emptor, Disclaimer Clauses and Buying Property “As Is”

• Posted on: Jun 5 2024

By: Jeffrey M. Haber

When parties negotiate an agreement, the terms of which are clear and unambiguous, their writing will be enforced according to its terms. In the event of a dispute, evidence outside the four corners of the document as to what the parties really intended is generally inadmissible.¹ Among the reasons for this rule is to give “stability to commercial transactions,” and other types of commercial interactions.² As the New York Court of Appeals observed, such a rule can safeguard “against fraudulent claims, perjury, death of witnesses … [and] infirmity of memory.…”³ 

Notwithstanding, questions arise about the enforceability of promises, commitments and agreements made alongside a commercial transaction. These questions tend to play out in disagreements over the meaning and effect of a contract, where one party attempts to rely on the extra-contractual statements of the other (e.g., in emails, telephone calls, or meetings) to support an argument, claim or defense.

One way to address such disputes before they happen is to include a “merger clause” or “integration clause,” in the contract or agreement. A merger clause is a provision in a contract that declares the writing to be the complete and final agreement between the parties. 

Merger clauses typically are found at the end of a contract or agreement, among the other “boilerplate” provisions, and, as such, are often neglected or ignored during negotiations. Boilerplate merger clauses are generally given little weight by the courts. However, when the merger clause evidences a negotiation by the parties, courts accord such clauses more weight in determining the parties’ intent.

In New York, the courts have required the parties to specify the agreements and matters being merged or integrated into their agreement.⁴ Without such specificity, the courts have allowed extra-contractual evidence to be used to explain the parties’ intent, especially in cases involving claims of fraudulent inducement.⁵

Another way to address disputes before they happen is to include a disclaimer clause. A disclaimer clause does what it sounds like: it disclaims reliance on extra-contractual representations. For a disclaimer clause to be enforceable, it must contain language that makes it clear that the parties are not relying on such representations. 

A party’s disclaimer of reliance cannot preclude a fraudulent inducement claim unless: (1) the disclaimer is specific to the fact alleged to be misrepresented or omitted; and (2) the alleged misrepresentation or omission does not concern facts peculiarly within the knowledge of the non-moving party.⁶ “Accordingly, only where a written contract contains a specific disclaimer of responsibility for extraneous representations, that is, a provision that the parties are not bound by or relying upon representations or omissions as to the specific matter, is a plaintiff precluded from later claiming fraud on the ground of a prior misrepresentation as to the specific matter.”⁷ 

There is, however, an exception to the enforceability of an anti-reliance provision – where the defendant has unique or peculiar knowledge of an allegedly misrepresented fact.  Under such circumstances, even a specific contractual disclaimer will not defeat a plaintiff’s contention that it reasonably relied on the misrepresentation.⁸

Sometimes disputes arise between the parties to an agreement where one party claims that the other party failed to disclose material information during negotiations of the agreement. This scenario often invokes the common law doctrine of caveat emptor. 

Under the doctrine, the courts will not impose liability on a seller of property or assets for failing to disclose information material to the transaction when the parties deal at arm’s length, unless there is some conduct on the part of the seller which constitutes active concealment.⁹ “If, however, some conduct (i.e., more than mere silence) on the part of the seller rises to the level of active concealment, a seller may have a duty to disclose information concerning the [transaction].”¹⁰ 

“To maintain a cause of action to recover damages for active concealment, the plaintiff must show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill his [or her] responsibilities fixed by the doctrine of caveat emptor.”¹¹ “Where the facts represented are not matters peculiarly within the party’s knowledge, and the other party has the means available to him or her of knowing, by the exercise or ordinary intelligence, the truth or the real quality of the subject of the representation, he or she must make use of those means, or he or she will not be heard to complain that he or she was induced to enter into the transaction by misrepresentations.”¹²

With the foregoing principles in mind, we examine Suber v. Churchill Owners Corp., 2024 N.Y. Slip Op. 03020 (1st Dept. June 4, 2024) (here).

Suber involved the purchase of shares and a lease in a cooperative apartment located in New York City. The contract of sale (the “Contract of Sale”) included, among others, the following provisions: an “as is” clause stating that plaintiff was purchasing the unit in “as is” condition; a disclaimer clause stating that plaintiff was not relying on any representations or warranties of the sellers as to the condition of the premises; and a merger clause. 

Plaintiff claimed that asbestos samplings were taken in the building and the lab results showed that the building had asbestos-containing materials. Plaintiff claimed that this information was known to defendants and not disclosed to her. 

Plaintiff sued defendants for various causes of action, including fraud and breach of contract. Defendants moved to dismiss the amended complaint. The motion court granted the motions. 

On appeal, the Appellate Division, First Department affirmed.

The Court held that the “motion court properly dismissed the amended complaint against the sellers of the shares and proprietary lease for the cooperative apartment at issue.” The Court further held that “the sellers [had] no duty to disclose the discovery of asbestos in the building or the related documents under the parties’ contract of sale.”¹³ The Court explained that the presence of the “as is” and merger clauses in the Contract of Sale “bar[red] plaintiff’s breach of contract claim.¹⁴ “Moreover,” said the Court, “the specific disclaimers and a merger clause bar[red] claims arising out of reliance on purported representations, such as the fraud, fraud in the inducement, fraudulent concealment, and negligent misrepresentation claims ….”¹⁵ 

The Court rejected plaintiff’s contention that the claims were subject to the special facts doctrine because “the sellers did not owe plaintiff a duty outside the arm’s [-] length transaction.”¹⁶ The Court also found that plaintiff “failed to plead facts that would support a finding of active concealment, as the ‘bare allegation that defendants knew of a latent defect in the conveyed premises [was] insufficient to make out a prima facie claim for fraud based on active concealment.’”¹⁷ 

Finally, the Court held that plaintiff’s “fraud claims were also properly dismissed” because plaintiff failed “to allege any material misrepresentation.”¹⁸ The Court explained that plaintiff learned of the asbestos condition in the building from a board memorandum three weeks after purchase – fact which plaintiff acknowledged. Armed with such information, the Court held that plaintiff could not complain “that the cooperative defendants somehow concealed or omitted its disclosure.”¹⁹ 

Footnotes

1. Golden Gate Yacht Club v. Societe Nautique De Geneve, 12 N.Y.3d 248 (2009).
2. W.W.W. Assoc. v Giancontieri, 77 N.Y.2d 157, 162 (1990).
3. Id.
4. See Hobart v. Schuler, 55 N.Y.2d 1023, 1024 (1982); LibertyPointe Bank v. 75 E. 125th St., LLC, 95 A.D.3d 706, 706 (1st Dept. 2012).
5. Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 320-21 (1959); Laduzinski v. Alvarez & Marsal Taxand LLC, 132 A.D.3d 164, 169 (1st Dept. 2015).
6. Basis Yield Alpha Fund [Master] v. Goldman Sachs Group, Inc., 115 A.D.3d 128, 137 (1st Dept. 2014). See also Danann Realty, 5 N.Y.2d at 323; MBIA Ins. Corp. v. Merrill Lynch, 81 A.D.3d 419 (1st Dept. 2011).
7. Basis Yield, 115 A.D.3d at 137.
8. Danann Realty, 5 N.Y.2d at 322.
9. Simone v. Homecheck Real Estate Servs., Inc., 42 A.D.3d 518, 520 (2d Dept. 2007); Razdolskaya v. Lyubarsky, 160 A.D.3d 994, 996 (2d Dept. 2018); Radushinsky v. Itskovich, 127 A.D.3d 838, 839 (2d Dept. 2015).
10. Hecker v. Paschke, 133 A.D.3d 713, 716 (2d Dept. 2015) (internal quotation marks omitted); see also Daly v. Kochanowicz, 67 A.D.3d 78, 92 (2d Dept. 2009).
11. Jablonski v. Rapalje, 14 A.D.3d 484, 485 (2d Dept. 2005); Razdolskaya, 160 A.D.3d at 996.
12. Rojas v. Paine, 101 A.D.3d 843, 845 (2d Dept. 2012).
13. Slip Op. at *1 (citing Stambovsky v. Ackley, 169 A.D.2d 254, 257 (1st Dept. 1991)).
14. Id. (citing TIAA Global Invs., LLC v. One Astoria Sq. LLC, 127 A.D.3d 75, 85 (1st Dept. 2015) (“an ‘as is’ clause in a contract to sell real property will ordinarily bar a claim for breach of contract”); Jarecki v. Shung Moo Louie, 95 N.Y.2d 665, 669 (2001)).
15. Id. (citing Von Ancken v. 7 E. 14 L.L.C., 171 A.D.3d 440, 441 (1st Dept. 2019), lv. denied, 33 N.Y.3d 912 (2019)).
16. Id. (citing Basis Pac-Rim Opportunity Fund [Master] v. TCW Asset Mgt. Co., 124 A.D.3d 538, 539 (1st Dept. 2015)).
17. Id. (quoting Jee Foo Realty Corp. v. Lemle, 259 A.D.2d 401, 402 (1st Dept. 1999)).
18. Id. at *2.
19. Id. (citations omitted).

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. 

This article is for informational purposes and is not intended to be and should not be taken as legal advice.