## Facts

- A tenant entered a five-year lease for industrial premises to operate a plant converting restaurant garbage into fertilizer.
- The lease stated that the premises were in an “unrestricted” zone and that the tenant’s proposed use would not violate the zoning ordinance; the landlord’s attorney-principal assured the tenant’s counsel this was true and the representation was guaranteed in the lease.
- The premises were actually in a more restrictive industrial district (M-1), imposing additional limitations and requirements on the proposed operation.
- The lease also included the tenant’s covenant that its operation would produce no objectionable odors or gases.
- After the tenant altered the premises and installed equipment, the City filed zoning violations before full operation began.
- The enterprise was terminated and the tenant vacated.
- The tenant sued for fraud in the inducement and breach of warranty based on the zoning representation; the landlords counterclaimed for rent and use and occupation and pursued summary proceedings for possession.
- After a bench trial, the tenant recovered $70,086.81, including return of rent paid and costs to install and remove equipment; the Appellate Division affirmed.

## Issues

1. Whether the landlords’ false statement that the premises were in an unrestricted zone and suitable for the proposed use supported a fraud-in-the-inducement claim, rather than being a nonactionable opinion of law.
2. Whether the tenant’s odor covenant (and alleged breach) barred or offset the tenant’s recovery for the landlords’ zoning misrepresentation.
3. Whether the awarded damages restoring the tenant to its pre-lease position were proper for fraud in the inducement.

## Decision

- The Court of Appeals affirmed the judgment for the tenant.
- The zoning assurance, written into and guaranteed by the lease and made as a statement of existing conditions, was an actionable misrepresentation supporting fraud in the inducement.
- The tenant’s inability to proceed was not determined solely by odor concerns; the restrictive zoning classification independently imposed barriers and costs that deprived the tenant of what it bargained for.
- The damages award returning rent paid and compensating installation and removal costs was upheld.

## Legal Principles

- A pure opinion of law generally does not support a tort claim for fraud, but a representation combining a legal component with an assertion of present fact (and made and relied on as fact) may be actionable.
- A landlord’s false representation and contractual guarantee of a property’s zoning status and permissibility for a specified use can constitute fraud in the inducement of a lease when the tenant justifiably relies.
- A tenant’s separate lease covenant does not negate a landlord’s actionable misrepresentation where the misrepresentation independently caused the tenant to lose the regulatory conditions and premises characteristics for which it contracted.
- Fraud in the inducement may support rescission-type recovery and consequential damages that place the plaintiff in the position it would have occupied absent the transaction.

## Conclusion

The court sustained the tenant’s fraud recovery because the landlords guaranteed as a present fact that the premises were zoned “unrestricted,” the statement was false, and the restrictive zoning directly prevented the tenant from obtaining the premises and operating conditions it had bargained for, warranting restitutionary and related damages.


National Conversion Corp. v. Cedar Bldg. Corp., 23 N.Y.2d 621 (N.Y. 1969)