In the recent decision of the Appellate Division, Second Department, in New Hackensack Realty, LLC v Lawrence Dev. Realty, LLC, 2024 NY Slip Op 01933 (2d Dep’t Decided April 10, 2024), the court addressed two reoccurring subjects: (1) whether representations contained in the subject contract can form the basis of fraud claims; and (2) the parameters for a claim of active concealment in real property sale transactions.

New Hackensack

The facts in New Hackensack were fairly straightforward.  Plaintiffs were the purchasers of real property on which a shopping center was located and for which certain leases existed.  In the contract of sale, a rider contained certain representations regarding the property, including with regard to the leases, the landlord-owner’s compliance with work requirements thereunder, and rental income.  The contract provided that those representations survived the closing.

After the transaction closed, plaintiff-purchaser allegedly discovered that the seller had misrepresented the amount of rental income that was being paid by tenants of the shopping center, the potential for additional development of the property, and the condition of the septic system for the property.

Plaintiff brought an action alleging breach of the sale contract as well as claims for fraud, fraudulent inducement, active concealment and unjust enrichment. Defendants moved to dismiss under CPLR 3211(a)(1) and (7).  The lower court dismissed all claims except for breach of contract.  As to the fraud claims, the court ruled that to the extent the fraud claims were based upon any contractual representations, they were subsumed within the breach of contract claim and thereby dismissed.  As to alleged representations regarding the future development of the real property, the court found that plaintiff had not justifiably relied on such representations because documentary evidence showed there could be no assurance of such future development.

Plaintiff appealed to the Second Department.

Fraud Claims Survive

The Second Department reversed and reinstated certain of the fraud claims.  The Court found “the complaint sufficiently alleged that the defendants induced the plaintiffs to consummate the transaction by misrepresenting facts regarding the true rental income generated by the shopping center on the subject property and the status of its tenants.”

Without going deeper into whether contractual representations can also form the basis of fraud claims, the Second Department took a more generic approach, finding that the rote allegations of the complaint sufficiently tracked the elements of a fraud claim:

Contrary to the defendants’ contentions, the cause of action alleging fraudulent inducement is not duplicative of the cause of action alleging breach of contract, as the plaintiffs alleged that the defendants made misrepresentations of present facts that were collateral to the contract and served as an inducement to enter into the contract (see Did-it.com, LLC v Halo Group, Inc., 174 AD3d 682, 683; GoSmile, Inc. v Levine, 81 AD3d 77, 81). Moreover, a general merger clause such as the one in the subject contract of sale is ineffective to exclude parol evidence of fraud (see Barnaba Realty Group, LLC v Solomon, 121 AD3d 730, 731), and, in any event, the contract specifically states that the seller’s representations regarding rent would survive the closing (see Davis v Weg, 104 AD2d 617, 619). Accordingly, because the defendants’ submissions did not utterly refute the plaintiffs’ factual allegations regarding the misrepresentations about rental income and conclusively establish a defense as a matter of law, or show that a material fact was not a fact at all, dismissal pursuant to CPLR 3211(a)(1) and (7) of the cause of action alleging fraudulent inducement based on the defendants’ misrepresentations regarding rental income was not warranted.

Interesting that the Second Department avoided the entire subject of the status of contractual representations of fact when relied upon for the tort of fraud. The Court seemed to accept the conclusory allegation that the facts represented were “collateral” to the contract, when that could not possibly have been the case, especially given that they were contained right in the contract itself.  As I explained in prior posts, there is good reason to allow fraud claims to be based on factual representations even if expressly contained in the subject contract.  See,e.g., Representations and Warranties in LLC Buyout Contract Save Fraud Claim.

The Second Department did, however, agree with the lower court that any fraud claim based upon alleged representations of the future development of the property did not amount to fraud, for two reasons. One, these representations were not of present facts, but rather mere future expectations.  Two, plaintiff could not have reasonably relied on such representations because plaintiff could have verified the true facts through publicly available information with due diligence.

Active Concealment

The Second Department also sustained the claim of fraud as it related to the septic system.  I have explained the special rules of alleging a claim that something was not represented in connection with the sale of real property, where the doctrine of caveat emptor applies.  See, e.g., Active Concealment of Hidden Water Damage Preserves Fraud Claim In Face of Caveat Emptor Defense.  Following those rules, the Second Department found:

          The Supreme Court should not have granted dismissal of the cause of action alleging fraudulent concealment. “New York adheres to the doctrine of caveat emptor and imposes no duty [*3]on the seller to disclose any information concerning the premises when the parties deal at arm’s length, unless there is some conduct on the part of the seller which constitutes active concealment” (Guoba v Sportsman Props., Inc., 200 AD3d 658, 660-661 [internal quotation marks omitted]). “If however, some conduct (i.e., more than mere silence) on the part of the seller rises to the level of active concealment, a seller may have a duty to disclose information concerning the property” (id. at 661 [internal quotation marks omitted]). “To maintain a cause of action to recover damages for active concealment in the context of a fraudulent nondisclosure, the plaintiffs must show, in effect, that the seller thwarted the plaintiffs’ effort to fulfill their responsibilities fixed by the doctrine of caveat emptor” (id. [internal quotation marks omitted]).

          Here, the plaintiffs sufficiently alleged facts that the defendants actively concealed the alleged defective condition of the septic system for the property (see Razdolskaya v Lyubarsky, 160 AD3d 994, 996-997; Margolin v I M Kapco, Inc., 89 AD3d 690, 692). The plaintiffs alleged that the defendants thwarted their ability to discover the true condition of the septic system by draining the system prior to their inspection, which prevented them from discovering the alleged defects before the sale of the property (see Gould v Syracusa, 254 AD2d 800, 801). As the defendants’ submissions failed to utterly refute those factual allegations and conclusively establish a defense as a matter of law, or show that a material fact was not a fact at all, the Supreme Court should have denied dismissal of the cause of action alleging fraudulent concealment.


Contractual representations of fact that turn out to be false can in fact form the basis not only of a breach of contract claim, but also fraud.  The Second Department in New Hackensack chose, either intentionally or unintentionally, to sidestep that direct subject by ruling that the contractual representations were “collateral” to the contract.

The Second Department also reinforced the concept of “active concealment” for claims of omissions in real property sales, requiring allegations that the seller thwarted the purchaser’s efforts to learn the true facts omitted.