Centronics Financial Corp. v. El Conquistador Hotel Corp., 57 N.Y.2d 1024 (1982)

A general merger clause in a contract is insufficient to bar parol evidence of fraudulent misrepresentation unless the misrepresentation is specifically contradicted by a provision in the agreement.

Summary

Centronics Financial Corp. sued El Conquistador Hotel Corp. to recover the balance due on a promissory note. The defendant asserted an affirmative defense and counterclaim based on the plaintiffs’ alleged fraudulent misrepresentations that induced the defendant to enter the agreement. The plaintiffs moved for summary judgment, arguing that a merger clause in the stock purchase agreement barred parol evidence of the alleged fraud. The New York Court of Appeals held that a general merger clause does not bar parol evidence of fraudulent misrepresentation when the representation isn’t specifically contradicted by the contract. Because the defendant raised a triable issue of fact regarding the alleged fraud, the Court affirmed the denial of summary judgment.

Facts

El Conquistador Hotel Corp. purchased shares in a corporation from Centronics Financial Corp., executing a promissory note for the balance due. El Conquistador later claimed that Centronics fraudulently misrepresented the corporation’s income to induce the purchase. Specifically, El Conquistador alleged that Centronics stated that the income was higher than reported due to unreported income removed from the corporation weekly.

Procedural History

Centronics Financial Corp. sued El Conquistador Hotel Corp. for the balance due on the promissory note. El Conquistador asserted fraud as an affirmative defense and a counterclaim. Centronics moved to strike El Conquistador’s answer and for summary judgment. The lower court denied the motion. The Appellate Division affirmed. The New York Court of Appeals affirmed the Appellate Division’s decision.

Issue(s)

Whether a general merger clause in a stock purchase agreement bars parol evidence of fraudulent misrepresentations made by the seller regarding the income of the corporation being sold.

Holding

No, because a general merger clause is insufficient to bar parol evidence of a fraudulent misrepresentation unless the fraudulent representation is specifically contradicted by the terms of the agreement.

Court’s Reasoning

The Court of Appeals reasoned that a general merger clause, which states that all representations are contained within the four corners of the agreement, is insufficient to preclude parol evidence of fraudulent misrepresentation. The court cited Sabo v. Delman, 3 N.Y.2d 155, for this proposition. The court distinguished the case from Danann Realty Corp. v. Harris, 5 N.Y.2d 317, noting that the fraudulent representation (regarding the corporation’s income) was not specifically contradicted by any of the detailed representations or warranties in the agreement. The court emphasized that El Conquistador’s affidavit raised a triable issue of fact because it alleged that Centronics knowingly made false statements about the corporation’s income to induce the purchase. The court determined that the affidavit allowed for the inference that plaintiffs knew the statements to be false when made. As the defendant raised a triable issue regarding the affirmative defense of fraud, summary judgment was correctly denied. In effect, the court reaffirmed the principle that while parties can disclaim reliance on specific representations, a general merger clause won’t shield a party from liability for fraud.