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Issues to Be Determined in Inquest After Default in Contract Action Explained; Viability of Fraud Cause of Action in Action Based on Contract Explained

In a contract action, the Third Department noted that: (1) a limitation of liability clause in a contract can be raised by the defaulting party after a default in the inquest on damages; (2) the court can determine whether the defaulting party stated valid causes of action; and (3) allegations of deceptive practices aimed at the general public state a cause of action under General Business Law 349.  In explaining why the fraud cause of action was valid in this contract-based case, the Third Department wrote:

In order to recover on the third cause of action for fraud, the defrauded party must allege a misrepresentation or omission of a material fact known to be false and made with the intent to deceive, as well as justifiable reliance and damages … .  While it is the general rule that “[a] separate cause of action seeking damages for fraud cannot stand when the only fraud alleged relates to a breach of contract” …, defendants’ allegations of fraud do not concern any express terms of the contract or third-party defendants’ failure to perform those term ….  Rather, defendants allege that third-party defendants fraudulently induced them into entering the contract by falsely representing that they were skilled, competent and experienced in providing construction management services.  Those allegations are not redundant of the breach of contract cause of action, which claims that third-party defendants failed to perform the terms of the contract … .  Defendants also alleged that they relied on the representations …, and the allegations permit us to infer that the reliance was justified.  Nor is there anything in the complaint or contract that would suggest that their reliance was unjustified … .  84 Lumber Co LP v Barringer…, 516235, 3rd Dept 10-17-13

 

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