New York Law Review

Deerfield Communications Corp. v. Chesebrough-Pond’s, Inc., 68 N.Y.2d 954 (1986): Fraudulent Inducement Exception to Merger Clauses

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Deerfield Communications Corp. v. Chesebrough-Pond’s, Inc., 68 N.Y.2d 954 (1986)

A promise made with a preconceived and undisclosed intention of not performing it constitutes a misrepresentation and can be the basis for a fraudulent inducement claim that is not barred by a general merger clause.

Summary

Deerfield Communications Corp. sued Chesebrough-Pond’s, Inc., alleging fraudulent inducement regarding an oral agreement with geographic restrictions on resale, despite a written contract lacking such restrictions and containing a general merger clause. Chesebrough-Pond’s counterclaimed for breach of contract (failure to pay) and fraud. The Court of Appeals held that the fraudulent inducement claim, alleging a present misrepresentation of intent, was distinct from the breach of contract claim, and not barred by the merger clause, as it induced the contract itself. The court also found no duplication of damages and that the remaining allegations of error lacked merit.

Facts

Deerfield Communications Corp. (plaintiff) entered into a written contract with Chesebrough-Pond’s, Inc. (defendant) for the purchase of goods. The written contract did not contain any geographic restrictions on resale. Chesebrough-Pond’s alleged there was an oral agreement imposing geographic restrictions on resale. Chesebrough-Pond’s claimed Deerfield had no intention of abiding by these restrictions. Deerfield failed to pay the balance due on the purchase price.

Procedural History

Chesebrough-Pond’s asserted three counterclaims in the trial court: (1) breach of contract for failing to pay the balance due, (2) breach of contract for violating the alleged oral geographic restrictions, and (3) fraud in the inducement. The trial court dismissed the second counterclaim (oral restrictions) because the restrictions were not in the written contract. The jury awarded Chesebrough-Pond’s $170,000 on the first counterclaim and $130,000 on the third. The Appellate Division affirmed the trial court’s decision. Deerfield appealed to the Court of Appeals.

Issue(s)

Whether a claim for fraudulent inducement, based on a promise made with the undisclosed intention of not performing it, is barred by a general merger clause in a subsequent written contract?

Holding

No, because

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