## Facts

- Arthur LaFazia and Dennis Gasrow agreed to sell Oaklawn Fruit and Produce (a delicatessen) to James and Theresa Howe.
- During negotiations, the sellers described the business as extremely profitable and stated they were selling due to burnout and a key helper’s death.
- The Howes requested business records to evaluate profitability and inventory; the sellers stated they paid cash, kept poor records, and that tax returns did not reflect “true” figures.
- After reviewing tax returns, the Howes initially viewed the business as not viable; the sellers responded by pointing to their lifestyle as proof of undisclosed profits.
- The Howes visited the store and observed what appeared to be a busy sandwich trade.
- The parties executed a written memorandum of sale for $90,000 ($60,000 cash and a $30,000 promissory note).
- The memorandum contained a merger/disclaimer clause stating the buyers relied on their own judgment as to past, present, or prospective profits and were not relying on any seller representations about profitability; it also stated the writing was the entire agreement.
- After closing, the business performed poorly; the Howes later sold it at a loss.
- The Howes paid $20,000 on the note but left $10,000 unpaid.

## Issues

1. Whether buyers could avoid liability on the promissory note based on fraudulent misrepresentation/fraud in the inducement when the contract contained clear merger and no-reliance disclaimers regarding profitability.
2. Whether the buyers timely and effectively rescinded, or instead affirmed the contract by continuing performance after learning of the alleged misrepresentations.
3. Whether any genuine issue of material fact precluded summary judgment for the sellers on the note and against the buyers’ fraud counterclaim.

## Decision

- The court affirmed summary judgment for the sellers on the unpaid $10,000 balance of the promissory note.
- The court held the merger/disclaimer provisions barred the buyers from establishing justifiable reliance on alleged oral statements about profitability.
- The court held the buyers did not effect rescission because they continued making payments after discovering the alleged fraud, conduct inconsistent with rescission.
- Because the dispositive facts were undisputed and the claims failed as a matter of law, summary judgment was proper.

## Legal Principles

- Clear merger and no-reliance disclaimers that expressly negate reliance on extra-contractual representations are enforceable and can defeat a fraud-in-the-inducement claim by negating justifiable reliance as a matter of law.
- When parties are represented by counsel and the contract language is straightforward, a party generally cannot claim justifiable reliance on prior oral statements that the written agreement disclaims.
- A party seeking rescission for misrepresentation must act promptly and consistently with rescission; continuing to perform after discovering the alleged fraud constitutes affirmance and bars rescission-based avoidance of contractual obligations.
- Summary judgment is appropriate when there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law; undisputed contract terms and undisputed post-discovery performance may be dispositive.

## Conclusion

The court enforced the contract’s merger and no-reliance provisions to preclude justifiable reliance on alleged profitability statements and held that continued payments after discovery of the alleged fraud constituted affirmance rather than rescission, entitling the sellers to judgment for the remaining balance on the promissory note.


LaFazia v. Howe, 575 A.2d 182 (R.I. 1990)