Pramco III, LLC v Partners Trust Bank
Annotate this CaseDecided on May 31, 2007
Supreme Court, Monroe County
Pramco III, LLC, Plaintiff,
against
Partners Trust Bank, Defendant.
2006/02318
Kenneth R. Fisher, J.
Plaintiff moves to reargue the motion to amend, this time focusing exclusively on the defendant's possession of the CyTech Hardwoods, Inc. check-kiting materials since before DebtX was hired to auction these distressed loans, because the Terms of Sale Memorandum promised that the Review File would contain documentary evidence of CyTech's check-kiting then in defendant's possession. Plaintiff relies again on First Bank of The Americas v. Motor Car Funding, Inc., 257 AD2d 287 (1st Dept. 1999), and on its theory that the warranty or representation contained in the Terms of Sale Memorandum antedated formation of the contract, which occurred only later by acceptance of plaintiff's bid.
The First Bank of America case contains a rather general statement that a fraudulent inducement claim is "not rendered redundant [of a breach of warranty claim] by the fact that these alleged misrepresentations breached the warranties . . . in the Agreement," and that, because "[a] warranty is not a promise of performance, but a statement of present fact[,] . . . a fraud claim can be based on a breach of contractual warranties notwithstanding the existence of a breach of contract claim." First Bank of The Americas v. Motor Car Funding, Inc., 257 AD2d 287, 292 (1st Dept. 1999). The warranties in First Bank, however, were "to the effect that the loans would comply with certain underwriting guidelines" and that "First Bank could refuse to purchase any loans that did not satisfy those criteria." Id. 257 AD2d at 289. By contrast, the particular misrepresentations which supported the fraudulent inducement claim in that case concerned separate individual instances over time "during the course of offering the loans to First Bank, [when] MCF made representations about the quality of the [*2]collateral, the individual borrowers' credit history and the amount of the borrowers' down payments," many of which were alleged to be false and thereby induced First Bank "to buy less valuable loans, which First Bank would have rejected if it had known the truth." Id. 257 AD2d at 289. Each instance of these particular misrepresentations, therefore, involved subject matter (i.e., quality of collateral, credit history, and amount of down payments) extraneous to the contract warranties themselves, the latter of which only concerned the limited subject of the underwriting guidelines, but which served to induce the contract.
In this case, by contrast, the only misrepresentation alleged by Pramco was the contractual warranty itself. Pramco fails to allege any misrepresentation extraneous to that contained (and made) in the Terms of Sale Memorandum itself, which was understood by all parties from the outset to become a part of the contract documents once the bid was accepted. Nothing of the kind of extraneous misrepresentations present in First Bank is alleged here. The false character of the representations in First Bank only incidentally established a breach of the underwriting guidelines warranties, because the misrepresentations "about various individual loans [were made] so that they would appear to satisfy these warranties." Id. 257 AD2d at 292 (emphasis supplied). In this case, there was no separate representation other than the Review File contents warranty itself.
In a recent Fourth Department case applying First Bank, the court underscored that the misrepresentation supporting the fraudulent inducement claim did not merely restate a contractual duty arising from the contract documents themselves. In Wright v. Selle, 27 AD3d 1065 (4th Dept. 2006), a renovation contract provided for payment "on a time and materials basis," and the misrepresentation allegedly inducing plaintiff to sign the contract was an estimate defendant allegedly knew substantially undervalued what would be required to complete the project. Id. 27 AD3d at 1068. In upholding the fraudulent inducement claim, the court, in part relying on First Bank, observed that "plaintiff was under no contractual duty to perform the work for the amount of the estimate" because the contract referred only to payment for time and materials. Id. "Thus, the allegedly false and misleading estimate is sufficient to support the counterclaim for fraudulent inducement, separate from the alleged breach of contract." Id.
Similarly, in M & A Oasis, Inc. v. MTM Associates, L.R., 307 AD2d 872 (1st Dept. 2003), the misrepresentation supporting the fraudulent inducement claim i.e., that the transaction would be for cash, was extraneous to the representations made in the contract documents. Because "the agreement on which plaintiff base[d] its contractual claims d[id] not require the purchase . . [*3]. to be an all cash transaction," the court held that the "alleged representation that the transaction would be all cash is not duplicative of plaintiff's breach of contract claim." Id. 307 AD2d at 873. See also, Deerfield Communications Corp. v. Chesebrough-Ponds, Inc., 68 NY2d 954, 956 (1986)(misrepresentation supporting fraud claim must be "collateral to, but which was the inducement for the contract, and thus was n[ot] duplicative of the . . . [contract claim]"); WIT Holding Corp. v. Klein, 282 AD2d 527, 528 (2d Dept. 2001)("a misrepresentation of material fact, which is collateral to the contract and serves as an inducement for the contract, is sufficient to sustain a cause of action alleging fraud")(emphasis supplied); Freedman v. Pearlman, 271 AD2d 301, 304 (1st Dept. 2000)(misrepresentation and concealment of income affecting, by "undercounting," contractual entitlements was extraneous to contract calling for payment of one-third share and thus supported finding that fraud claim not duplicative of contract claim)(relying on First Bank). Cf., Sager v. Friedman, 270 NY 472, 481, 483 (1936)(describing in the context of damages/remedy the "vital distinction" between "fraudulent misrepresentations [which] d[o] not constitute a part of the contract" but "were merely an inducement to the making of the contract," id. 270 NY at 281, and the situation in which "the representation had been a warranty, and part of the contract," id. 270 NY at 483); Wall v. CSX Transportation, Inc., 471 F.3d 410, 416 (2d Cir. 2006)(describing Deerfield Comms. Corp. v. Chesebrough-Ponds, Inc., supra, as "holding that a promise [not contained in the written agreement]" may support a fraudulent inducement claim)(bracketed material supplied by the Wall court).
The representation in this case concerning the contents of the Review Files was nothing more than what was announced to be the contractual warranty itself, and accordingly cannot be extraneous to the contract and cannot support an independent fraud claim. Plaintiff's reference to the timing of the Terms of Sale Memorandum as antedating formation of the contract is unavailing. The identification of the intended contract documents was contained in the Terms of Sale Memorandum and included the Terms of Sale Memorandum itself. Taking plaintiff's arguments to its logical extreme, a plaintiff may make out a distinct fraudulent inducement claim in any case in which a defendant presents it with a form contract containing promises or warranties the defendant knows to be false, on the mere theory that presenting the form contract with its representations is an extraneous act which induced plaintiff to sign the contract. That is not our law, as demonstrated above. By every "guidepost" identified in Sommer v. Federal Signal Corporation, 79 NY2d 540, 551-53 (1992), this is a breach of contract action, not a fraud claim. Oppman v. IRMC Holdings, Inc., 14 Misc 3d 1219(A), 2007 [*4]WL151355 (Sup. Ct. NY Co. January 23, 2007).
The motion to reargue the motion to amend is denied. Dionisio & George DeRue Contractors, Inc., 38 AD3d 1172, 1174 (4th Dept. 2007).
SO ORDERED.
______________________
KENNETH R. FISHER
JUSTICE SUPREME COURT
DATED:May 31, 2007
Rochester, New York
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
