Danann Realty Corp. v. Harris

New York Court of Appeals · 1959 · Contracts

5 N.Y.2d 317 (1959)

Updated July 19, 2026

contractsfraudparol evidencereliancedisclaimer clausesspecific disclaimernon-reliance clausefraud in the inducement

Facts

Plaintiff alleged that defendants falsely made oral representations during negotiations about the building's operating expenses and the profits to be derived from the investment, inducing plaintiff to enter the contract. The written contract, annexed to the complaint, stated that the seller had made no representations as to rents, leases, expenses, operation, or any related matter except as specifically set forth in the contract. It also stated that the purchaser expressly acknowledged that no such representations had been made, that all prior understandings were merged into the contract, and that neither party was relying on any statement or representation not embodied in the contract. Plaintiff affirmed the contract and sought damages for fraud rather than rescission.

Issue

Can a purchaser state a cause of action for fraud based on oral misrepresentations about operating expenses and profits when the written contract specifically disclaims any representations on those subjects and expressly states that the purchaser is not relying on extra-contractual representations?

Rule

A general merger clause does not bar proof of fraud in the inducement. But where a contract contains a specific disclaimer that the buyer is not relying on representations as to the very subject matter later alleged to be fraudulent, that specific disclaimer destroys the allegation of reliance and bars the fraud claim, absent allegations that the disclaimer itself was procured by fraud or was not understood.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Chicago, Nora Patel agreed to buy a warehouse lease from East Harbor Holdings, LLC. During negotiations, East Harbor's manager orally stated that annual maintenance costs were under $40,000, but the written contract said the seller made no representations about maintenance costs, tenant charges, or operation of the property except as stated in the agreement, and that Nora was not relying on any statement not embodied in the contract.

If Nora keeps the contract in force and sues for fraud based on the oral statement about maintenance costs, what is the strongest argument for dismissing her claim?

Explanation. A fraud claim requires justifiable reliance. Under the majority rule here, a specific disclaimer stating that the buyer is not relying on extra-contractual representations about the very subject later alleged to have been misrepresented destroys the reliance allegation. A mere written contract or general merger clause alone would not automatically do so, and fraud damages are not categorically limited to rescission.