A. The Effect of the Merger Clause
As an initial matter, plaintiffs contend that the Contract contained a
merger clause which bars this Court from considering parol testimony as
to defendants contention that plaintiffs misrepresented the Property's
boundary line to defendants. The Contract provided that "[a]ll prior
understandings, agreements, representations and warranties, oral or
written, between Seller and Purchaser are merged in this contract; it
completely expresses their full agreement and has been entered into after
full investigation, neither party relying upon any statement made by
anyone else that is not set forth in this contract." (A. Greenfield
Aff., Ex. A, ¶ 28(a).)
As a general matter, representations or warranties made prior to the
execution of a written contract for the purchase of real property are
merged therein and may not be proved by oral testimony. See, e.g.,
Strauss v. Abraham Levitt & Sons, 244 A.D. 739, 740, 278 N.Y.S. 953
(N.Y.App.Div. 1935). However, it is well-settled New York law that "a
general merger clause is ineffective to exclude parol evidence of fraud
in the inducement in an action to rescind the contract." DiFilippo v.
Hidden Ponds Assocs., 146 A.D.2d 737, 537 N.Y.S.2d 222 (N.Y.App.Div.
1989); see also Schooley v. Mannion, 241 A.D.2d 677, 678, 659 N.Y.S.2d 374
(N.Y.App.Div. 1997). Accordingly, defendants in the instant case are not
barred by the Contract's merger clause from introducing evidence of fraud
in the inducement.
B. Fraud in the Inducement
To make out a defense of fraud, a party must demonstrate that "a
material representation, known to be false, has been made with the
intention of inducing its reliance on the misstatement, which caused it
to reasonably rely on the misrepresentation, as a result of which it
sustained damages." First Nationwide Bank v. 965 Amsterdam, Inc.,
212 A.D.2d 469, 470-71, 623 N.Y.S.2d 200 (N.Y.App.Div. 1995); see also
McGovern v. T.J. Best Bldg. and Remodeling, Inc., 245 A.D.2d 925, 926,
666 N.Y.S.2d 854 (N.Y.App.Div. 1997). In the instant case, we need not
address whether plaintiffs misrepresented the Property's boundary to
defendants, as defendants' reliance on such a representation, as a matter
of law, would not be reasonable.
"If the facts represented are not peculiarly within the representor's
knowledge and the other party has the means available to him of knowing
by the exercise of ordinary intelligence the truth or real quality of the
subject of the representation he must make use of those means or he will
not be heard to complain that he was induced to enter the transaction by
misrepresentation." DiFilippo, 146 A.D.2d at 738, 537 N.Y.S.2d 222; see
also Dunkin' Donuts of Am., Inc. v. Liberatore, 138 A.D.2d 559, 560,
526 N.Y.S.2d 141 (N.Y.App.Div. 1988).
The fact allegedly misrepresented by plaintiffs, the boundary line of
the property to be sold, was not within the peculiar knowledge of
plaintiffs and could have been ascertained by defendants by the means
available to them by the exercise of reasonable diligence. See Eisenthal
v. Wittlock, 198 A.D.2d 395, 396, 603 N.Y.S.2d 586 (N.Y.App.Div. 1993)
(purchasers could not establish reasonable reliance on seller's
representation as to boundaries of real property); O'Dell v. Ginsberg,
253 A.D.2d 544, 677 N.Y.S.2d 583, (N.Y.App.Div. 1998) (purchaser
precluded from bringing misrepresentation claim as to size of property to
be sold, as "such facts in a case relating to the sale of property are
not peculiarly within the seller's knowledge").
In the instant case, defendants were sophisticated individuals who had
retained the services of a broker and an attorney. Defendants' broker,
Bickler, had access to a topographical map of the Property prior to the
execution of the Contract, but as Bickler admitted during her
deposition, she did not know how to read it.
However, a contractor engaged by defendants to design a swimming pool on
the Property was able to determine, using the map supplied to defendants
by plaintiffs, that the backyard did not extend as far as defendants
claim they were led to believe it did. Following this discovery,
defendants' broker contacted plaintiffs' surveyor to determine where the
Clearly, defendants could have determined the position of the rear
property line and whether there was sufficient space to construct a
swimming pool in the backyard prior to execution of the Contract. A
contractor was able to make this determination from a map defendants
admit was supplied to them before they signed the Contract. Defendants
contend that the map was illegible, but there was nothing to stop them
from contacting the surveyor who created the map before the Contract was
signed, as indeed they did after the Contract was executed.
The rule of caveat emptor is subject to exception in New York in
certain narrow circumstances where the seller had a duty to disclose a
material fact known to the seller, but unknown to the buyer. See, e.g.,
Scharf v. Tiegerman, 166 A.D.2d 697, 698, 561 N.Y.S.2d 271 (N.Y.App.Div.
1990) (sellers had duty to disclose that city was contemplating
revocation of house's nonconforming status as three-family dwelling);
Stambovsky v. Ackley, 169 A.D.2d 254, 260, 572 N.Y.S.2d 672
(N.Y.App.Div. 1991) (purchaser relieved of obligations under contract to
purchase house where seller failed to disclose house's reputation for
being haunted). However, in a case such as this, where defendants had the
means and the opportunity to discern the truth of plaintiffs'
representations, defendants are bound by the bargain they struck.
C. Liquidated Damages
A contract provision for liquidated damages controls the rights of the
parties in the event of a breach. Smith v. Putnam, 145 A.D.2d 383, 385,
535 N.Y.S.2d 725 (N.Y.App.Div. 1988). Here, defendants failed to appear
and close title on October 5, 1998 in accordance with Gullotta's letter
to Polow of September 20, 1998, which clearly and unequivocally notified
defendants that plaintiffs were ready, willing and able to convey
marketable title and that time was of the essence. Accordingly,
plaintiffs are entitled to the $79,900 escrow fund, representing
defendants' downpayment, as liquidated damages. See Graubard Mollen
Dannett Horowitz Shapiro and Pomeranz v. Madison Invs., Inc.,
173 A.D.2d 386, 570 N.Y.S.2d 16 (N.Y.App.Div. 1991).
For the foregoing reasons, plaintiffs' motion for summary judgment is
granted. The Clerk of the Court shall enter judgment for plaintiff.
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