Fraud claims can be assigned, but the assignment of a contract does not automatically incorporate and include fraud claims relating to that contract. Contract rights are distinct from tort-related claims, such as fraud or misrepresentation. Courts look to the language of the assignment and the parties’ intent, and as a new Appellate Division, First Department, decision shows, circumstances surrounding the assignment when the language is not so precise. (BH 336 Partners LLC v Sentinel Real Estate Corp., 2026 NY Slip Op 00305 (1st Dep’t Decided Jan. 22, 2026))
As explained below, the main takeaway is that adding simple language in the assignment can avoid disputes (and more importantly, costly and time-consuming litigation) over the issue.
The Need for Transactional Lawyers to Understand Case Developments
I often comment that transactional, contract-writing lawyers need to be mindful and aware of case law developments on contractual phraseology and concepts, lest they risk later adverse court determinations contrary to what they intended to implement in the subject contracts. As I have observed:
Oftentimes, in this age of increasingly specialized legal representation, lawyers who write contracts do not also handle the disputes that arise over the meaning or enforceability of those contracts. Thus, those who write the contracts do not typically benefit from how the courts interpret those contracts.
See Grappling with Fiduciary Duties in Enforcing Contracts.
And:
When contract disputes give rise to litigation, the resulting court decisions are often studied and used by the attorneys who argue the cases. Attorneys who could benefit the most from such decisions, however, are the ones who are responsible for drafting the contracts in the first place. As the case law evolves, contract provisions must adapt accordingly to account for the changing scope of the law so as to avoid litigation and to protect the parties from unintended consequences.
See The Need to Adapt Contracts To Case Law
I have often noted various contract terminology that is simple enough to implement in connection with many subjects, including relating to fraud claims. For example, I have noted how using precise language in releases can encompass the release of fraud claims. See Strategically Worded Release Obliterates All Fraud and Other Claims Attempted to be Asserted.
In this age of AI (artificial intelligence) and massive web-based information, there are available tools to survey and stay up on the evolving law—my NYFraudClaims.com Blog is an example.
Simple Language Can Be Added to any Assignment to Encompass Tort Claims, Including Fraud
I addressed the issues relating to the assignment of fraud claims in Fraud Standing: Can Fraud Claims Relating to Contracts be Assigned?
As I have observed: The assignee of contractual rights can of course enforce the underlying contractual obligations assigned, but if the assignor was defrauded into entering into the assigned contract in the first instance, the remedies for such fraud do not automatically or necessarily follow with the assignment to the assignee.
The leading Court of Appeals case is Commonwealth of Pennsylvania Pub. School Employees’ Retirement Sys. v Morgan Stanley & Co., Inc., 25 NY3d 543, 550 (2015)(certain citations omitted), in which the Court explained:
To be sure, fraud claims are freely assignable in New York (see Banque Arabe, 57 F.3d at 151–153; Glen Banks, New York Contract Law § 15:4 [28 West’s N.Y. Prac. Series]; see also General Obligations Law § 13–101). It has long been held, however, that the right to assert a fraud claim related to a contract or note does not automatically transfer with the respective contract or note … . Thus, where an assignment of fraud or other tort claims is intended in conjunction with the conveyance of a contract or note, there must be some language—although no specific words are required—that evinces that intent and effectuates the transfer of such rights … . Without a valid assignment, “only the … assignor may rescind or sue for damages for fraud and deceit” because “the representations were made to it and it alone had the right to rely upon them” … .
The language in the assignment is therefore key.
Sentinel Case
The First Department’s recent decision in the Sentinel case is instructive.
It is very common in sophisticated real property transactions for the contract vendee, i.e., the party which is entering into the contract to purchase the property, to subsequently assign the contract rights to an affiliated entity. There are many business, legal and tax reasons for this phenomenon. In Sentinel, a group of plaintiffs were the assignees of contracts for the purchase of real property in New York City. While this is a very common scenario, none of the assignments or related documents actually mentioned the assignment of any tort-related claims.
The assignee plaintiffs nevertheless sued the sellers of the properties, alleging, among other things, that the sellers fraudulently misrepresented “that many of the rent-stabilized units in [the subject sold] apartment buildings had been legally deregulated when in fact the deregulation of the apartment had been illegally effected.”
Certain of the plaintiffs’ claims were dismissed as time-barred as the contracts were entered into more than six years prior to the lawsuit (and they did not establish the benefit of the extended two-year period due to their knowledge of circumstances of the alleged fraud). The assignees’ contracts were not so time-barred, but the defendants asserted that the assignees did not have legal standing to bring the fraud claims because they did not actually enter into the contracts in the first instance and the alleged misrepresentations were made during the due diligence period before the assignments.
The Commercial Division (Supreme Court, New York County (Lori G. Sattler, J)) denied the defendants’ motion to dismiss on the standing grounds, and the First Department affirmed.
The assignments at issue reflected that “‘all. . . right, title and interest’ of the purchasers in the respective purchase contracts” were assigned. While both the Commercial Division and the First Department ultimately found that language acceptable, the First Department did have to jump through some legal hoops to get there, including recognizing cases that had not found such language to be sufficient but nevertheless finding that the circumstances surrounding the assignments signified an intention of the assignor and assignee to have included the fraud claims.
As did the Commercial Division, the First Department found it significant that “the parties to the original purchase contracts specifically contemplated that the assignment would be a part of the transaction.” With these “surrounding circumstances” and the “broad” language of the assignment, the First Department ultimately affirmed:
In the presence of sufficiently broad assignment language, courts are permitted to assess the circumstances of the surrounding assignment to discern if the parties intended to transfer fraud claims … .
Other courts have considered the surrounding circumstances in determining whether the parties intended to assign claims of fraud. In Banque Arabe, 57 F3d 146, 151-153 [2d Cir 1995], for example, the Second Circuit held that a recitation in an assignment agreement transferring “all of [the predecessor party’s] rights, title and interest” in a “transaction” was sufficient to transfer a fraud claim upon analyzing the underlying circumstances (see also International Design Concepts, LLC v Saks Inc., 486 F Supp 2d 229 [SD NY 2007][finding tort claims assigned when the language assigned “all assets . . . without limitation”]). The Commonwealth of Pennsylvania Court analyzed these cases, noting that the assignments were made in contemplation of the assignor’s dissolution (in Banque) or where the assignor was already defunct (in Internationale), compelling the conclusion that the assignors had intended to assign their respective tort claims.
The assigning language in this case was also sufficiently broad to create a factual issue surrounding the parties’ intent under these circumstances. This Court has found that “all of [the predecessor party’s] right, title and interest in and to” a mortgage may be sufficient to transfer a fraud claim (North Fork Bank v Cohen & Krassner, 44 AD3d 375, 375 [1st Dept 2007]). While this Court has held in other contexts that fraud claims would not be assigned in the presence of similar contractual assignment language (see, e.g., Dexia SA/NV v Stanley, 132 AD3d 497, 497 [1st Dept 2016], lv denied 28 NY3d 903 [2016]; Royal Park Sealink Funding Ltd. v Morgan Stanley, 133 AD3d 458 [1st Dept 2015], lv denied 32 NY3d 1143 [2019]), these cases did not involve a situation like here, where it is alleged that the original purchasers were, in effect, the same as the assignee plaintiffs, with the same person signing on behalf of the purchaser-assignors and the assignees. Instead, Dexia and Royal Park deal with the post-facto assignment of rights under a contract entered into between the assignee and a third party, where the intention of the assignor would be more difficult to discern.
Commentary
As the Sentinel case shows, there was a great deal of litigation (motions and appeals) over the meaning and effect of the assignments in dispute. In fact, since this was merely the context of a motion to dismiss, the appeal did not conclude the entire case. If in fact the assignment of tort claims is intended, especially in these commonplace contractual settings, simple, direct language in the assignments might be considered, such as:
Assignor hereby assigns, transfers, and conveys to Assignee all of Assignor’s right, title, and interest in and to the Purchase Agreement, together with all claims, demands, causes of action, and rights of recovery of any kind whatsoever, whether known or unknown, foreseen or unforeseen, arising out of or relating to the Purchase Agreement, the Property, or the transactions contemplated thereby, including any claims based upon contract, tort (including fraud, negligent misrepresentation, and concealment), statute, or equity.