A common theme in commercial litigation is the assertion of a breach of contract claim and a fraudulent inducement claim. A plaintiff claiming a breach of contract must show (1) the existence of a contract; (2) the plaintiff’s performance under that agreement; (3) the defendant’s breach of its obligations; and (4) damages resulting from the breach.[1]

One of the provisions parties often include in their contract is a merger clause. A merger clause is a provision in which the parties declare their writing to be the complete and final agreement between themselves.

Although it is common to find a merger clause in a contract, it is not necessary to include one for the agreement to be enforceable. A written agreement that is “complete, clear and unambiguous on its face [will] be enforced according to the plain meaning of its terms.”[2]

To determine whether a contract without a merger clause is “complete, clear and unambiguous,” the courts look at the agreement in “light of [the] surrounding circumstances” and determine whether other proposed oral contract terms are the type “which the parties would ordinarily be expected to embody in the writing.”[3] If the other proposed terms are the type that would “ordinarily be expected” to have been included in the writing, their omission indicates that the writing is complete.[4]

As readers of this Blog know, where contract and fraud claims are asserted in the same complaint, more times than not, the fraud claim will be dismissed under the duplication of claims doctrine. Under this doctrine, “[a] cause of action to recover damages for fraud will not lie where the only fraud claimed arises from the breach of a contract.”[5] “Mere unfulfilled promissory statements as to what will be done in the future are not actionable as fraud and the injured party’s remedy is to sue for breach of contract.”[6] However, if the plaintiff alleges a misrepresentation of “present facts that [are] collateral to the contract and served as an inducement to enter into the contract, [then] a cause of action alleging fraudulent inducement is not duplicative of a breach of contract cause of action.”[7]

The foregoing principles were recently examined in Lentner v. Upstate Forestry & Development, LLC, 2023 N.Y. Slip Op. 06626 (4th Dept. Dec. 22, 2023) (here).

Lentner involved the sale of timber rights on real property consisting of approximately 299 acres of property improved by a residence (the “Property”). The Property is owned by plaintiff, Joanne Lentner (“Lentner”).

On February 24, 2015, Lentner and “Upstate Development” entered into a written Timber Sale Contract (the “Timber Sale Contract”), pursuant to which Lentner sold to Defendant, Upstate Forestry and Development LLC (“Upstate Forestry”), the rights to remove timber on the Property in exchange for an upfront cash payment of $15,500.00. The Timber Sale Contract was negotiated and signed by Defendant, David Isabell (“Isabell”), as authorized agent for Upstate Forestry, and/or Defendant, Charles Nowack (“Nowack”), a member of Upstate Forestry.

During negotiations, Isabell proposed dividing the Property into three sections, each to be treated differently under the arrangement. That proposal was reflected in an aerial map that Isabell marked up to show the partition.

Pursuant to the parties’ discussions, Lentner would be paid for the “lower” or southerly section of the Property. The “upper” or northern section of the Property was marked on the map by Isabell with x’s to show there was to be no logging on that parcel and would be addressed in a future contract. The “middle” section of the Property was to be logged on a per-tree basis and Plaintiff was to be paid 50% of the value of the timber set forth on sawmill tally sheets to be provided to Plaintiff.

The aerial map was not annexed to the Timber Sale Contract. It was attached to another document at the time the parties entered the Timber Sale Contract.

Nowak paid Plaintiffs the $15,500.00 in cash on May 27, 2015, after logging was underway. No other payments were made to Plaintiffs. Plaintiffs halted logging on the Property when they discovered the upper or northerly parcel was being logged.

Plaintiffs subsequently commenced the action, claiming breach of contract in connection with the trees removed from the middle zone of the Property and not paid for, as well as the trees improperly removed from the northernmost zone. In addition to claiming breach of contract, Plaintiffs alleged that they were fraudulently induced to enter into the Timber Sale Contract. In particular, Plaintiffs alleged that Defendants falsely represented that they would not conduct any logging on the Northern most section of the Property delineated by the parties on the aerial map and that they would compensate Plaintiffs on a per log basis for any timber removed from the middle section of the Property as delineated on the aerial map annotated by the parties.

Following discovery, Defendants moved for summary judgment to dismiss the complaint. The motion court denied the motion, holding that the Timber Sale Contract was not integrated and that there were “issues of fact as to the terms of the contract.” The motion court noted that the agreement “lack[ed] a sufficient description of the property to be logged,” because “[t]he only potential description of where logging was to occur is . . . listed as the 911 or mailing address of the seller/owner.” The motion court further noted that “[t]here [was] no acreage, tax map reference, or any other identifying information” for the Property. As a result, the motion court held, that Plaintiffs’ “testimony as to the area to be logged [was] not necessarily contradictory to the terms” of the Timber Sale Contract “which nowhere clearly states the entire … property is to be logged for $15,500, which would presumably include the area of the residence” in the northern section of the Property.

Regarding the fraudulent inducement claim, the motion court held that Defendants “made a number of misrepresentations” to induce Plaintiffs to enter into the agreement, “which include[d] promising not to log on the Northernmost section of the property and paying … on a per log basis for any timber removed from the middle section of the property.”

On appeal, the Fourth Department modified and affirmed the motion court’s order.

The Court held that “Defendants met their initial burden of establishing that the timber sale contract [was] a complete written instrument,” and, as such, “plaintiffs failed to raise a triable issue of fact in opposition.”[8] Defendants argued that the Timber Sale Contract was a complete contract that set forth the salient terms of the parties’ agreement. The Court agreed, finding that the “contract sets forth the parties, the address of the property, the contract period, the payment terms, and a description of the items sold.”[9] Accordingly, the Court held that “[i]nasmuch as the contract constituted a complete, integrated agreement, plaintiffs may not rely on an alleged oral agreement to permit logging on the southernmost section of the property, permit logging on the middle section of the property only upon additional payment, and prohibit logging on the northernmost section of the property, to vary the terms of the contract.”[10] In so concluding, the Court emphasized that “one would expect the contract to embody any such restrictions on logging, and ‘[s]uch a collateral agreement cannot be separately enforced.’”[11]

The Court also held that the motion court properly denied the motion with regard to the fraudulent inducement claim against Upstate Forestry.[12] The Court “reject[ed] defendants’ contention that the fraud cause of action was merely duplicative of the cause of action for breach of contract.”[13] The Court found that Upstate Forestry’s “representations … to secure permission to log timber on the property, i.e., representations regarding the northernmost and middle sections of the property,” were different than the breach of contract claim.[14] “[T]hose representations,” said the Court, “were false and known by the agents to be false at the time they were made inasmuch as Upstate [Forestry] intended to log the entire property and not adequately compensate plaintiffs, and that plaintiffs relied upon those fraudulent misrepresentations to their detriment.”[15]

Takeaway

In Lentner, the Court is making a distinction between the terms of the Timber Sale Contract – $15,500.00 for the right to log timber on the Property – and the partition of the Property for logging purposes that was delineated on the aerial map associated with the Timber Sale Contract. The distinction makes sense: the parties agreed that Upstate Forestry would make an upfront cash payment in exchange for the right to log timber on the Property for a defined period. The partition of the Property for logging timber was not included in the one-page agreement. If the parties intended to include the differentiated zones for logging, then they would have included it in the agreement itself. There was nothing in the Timber Sale Contract that indicated the parties intended to include the delineations outlined in the associated map. Since the delineations in the associated map were not part of the Timber Sales Contract, then the fraudulent inducement claim, which was based on those delineations, could not be duplicative of the breach of contract claim.  

[1] Davis v. Zeh, 200 A.D.3d 1275, 1278 (3d Dept. 2021).

[2] Greenfield v. Philles Records, 98 N.Y.2d 562, 569 (2002).

[3] Braten v. Bankers Trust Co., 60 N.Y.2d 155, 162 (1983) (internal quotation marks and citation omitted); see also Manufacturers Hanover Trust Co. v. Margolis, 115 A.D.2d 406, 407 (1st Dept. 1985).

[4] Braten, 60 N.Y.2d at 162 (citing Mitchill v. Lath, 247 N.Y. 377, 380–381 (1928)).

[5] Gorman v. Fowkes, 97 A.D.3d 726, 727 (2d Dept. 2012); see also Selinger Enters., Inc. v. Cassuto, 50 A.D.3d 766, 768 (2d Dept. 2008); Tiffany at Westbury Condominium v. Marelli Dev. Corp., 40 A.D.3d 1073, 1076 (2d Dept. 2007).

[6] Brown v. Lockwood, 76 A.D.2d 721, 731 (2d Dept. 1980) (citation omitted).

[7] Did-it.com, LLC v. Halo Group, Inc., 174 A.D.3d 682, 683 (2d Dept. 2019).

[8] Slip Op. at *2 (citing Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 (1986)).

[9] Id. (citing Battista v. Radesi, 112 A.D.2d 42, 42 (4th Dept. 1985)).

[10] Id.

[11] Id. (quoting Braten, 60 N.Y.2d at 162).

[12] Id.

[13] Id.

[14] Id.

[15] Id.