National Conversion Corporation v. Cedar Building Corporation

New York Court of Appeals · 1969 · Torts

23 N.Y.2d 621 (1969)

Updated July 23, 2026

TortsFraudFraud in the inducementLandlord-tenantDamagesRescissionzoning misrepresentationlandlord misrepresentation

Facts

The landlords leased industrial premises to the tenant, who intended to convert restaurant garbage into fertilizer, and the lease represented that the premises were in an unrestricted zone and that the proposed use would not violate zoning. The lease also required the tenant's operations to produce no objectionable odors or gases. In fact, the premises had been placed in an M-1 district under a new zoning resolution, and garbage conversion there was allowed only if stricter odor and other performance standards were met; the premises were not adapted to meet those standards, and significant added expense would have been required. After alterations, installation, and experimental runs, city violations were filed, the enterprise was terminated, and the tenant moved out and sued for fraud.

Issue

Whether the tenant could recover for fraud in the inducement based on the landlords' false representation that the premises were in an unrestricted zone, despite the tenant's covenant not to produce objectionable odors and despite the argument that the zoning statement was only a misrepresentation of law. A further issue was whether rescission allowed recovery of previously paid rent and installation and removal damages.

Rule

A false representation by a landlord that leased premises are in an unrestricted zone or legally usable for the tenant's intended purpose is actionable fraud when made intentionally or recklessly and reasonably relied on by the tenant. Such a statement is not barred merely because it involves legal applicability, where it is understood as a statement of fact or a mixed statement of fact and law about the premises and governing zoning. Upon rescission for fraud, the tenant is relieved of future rent and may recover past rents and consequential expenses depending on the nature and effect of the fraud, so long as damages are shown with reasonable evidence.

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In Cleveland, Orion Storage LLC leased a warehouse to Lena Ortiz for use as a soap-manufacturing facility. The lease stated that the property was in an unrestricted district and that Lena's intended use complied with local zoning, but it also required Lena not to emit offensive fumes. The site was actually in a light-industrial district that allowed the use only if costly filtration and vibration controls were added.

If Lena rescinds after learning the truth and sues for fraud, what is the strongest argument for allowing her claim?

Explanation. The governing rule is that cross-covenants should be reconciled if possible, not treated as mutually nullifying. A tenant's promise not to create offensive conditions is still sensible even for unrestricted premises because common-law nuisance principles remain. Thus, a landlord's false representation that the property is unrestricted or legally usable for the tenant's planned use can still be material fraud.