## Facts

- Danann Realty Corp. contracted to purchase a leasehold interest in a building from David A. Harris and others.
- Danann alleged it was induced to enter the agreement by defendants’ oral misrepresentations concerning the building’s operating expenses and profits.
- The written contract (incorporated into the complaint) stated that the seller made no representations regarding the premises, including “rents, leases, expenses, [and] operation,” except as set forth in the contract.
- The contract further provided that the purchaser had investigated, accepted the premises “as is,” and that neither party relied on any statement or representation not embodied in the contract.
- Danann affirmed the contract and sued for damages for fraud.

## Issues

1. Whether a purchaser states a cause of action for fraud based on alleged oral misrepresentations about expenses and profits when the contract specifically disclaims that such representations were made and disclaims reliance on extra-contractual statements.
2. Whether the pleaded element of reliance can be established as a matter of law in light of the contract’s specific disclaimer and merger language.

## Decision

- The New York Court of Appeals reversed the Appellate Division and reinstated dismissal of the complaint.
- The court held the fraud claim failed because the contract’s specific disclaimer directly contradicted and negated any alleged reliance on the asserted oral misrepresentations.
- The certified question—whether the first cause of action stated sufficient facts—was answered in the negative.

## Legal Principles

- A fraud claim requires a showing of justifiable reliance on the alleged misrepresentation.
- A general merger clause, standing alone, does not necessarily bar a fraud claim based on extra-contractual misrepresentations.
- A specific disclaimer stating that no representations were made on the precise subject matter alleged, and that the plaintiff did not rely on extra-contractual statements, precludes establishing reliance and warrants dismissal.
- Where sophisticated parties expressly allocate the risk of reliance through a targeted non-reliance clause, a plaintiff cannot plead reliance on contradictory prior oral assurances.

## Conclusion

Because the contract specifically disclaimed representations and reliance regarding operating expenses and profits, Danann could not, as a matter of law, plead the reliance necessary for fraud, and its complaint was properly dismissed.


Danann Realty Corp. v. Harris, 5 N.Y.2d 317 (N.Y. 1959)