GTE Automatic Elec. Inc. v. Martin's Inc.

• Decision Date: 26 February 1987
• Citation: 512 N.Y.S.2d 107,127 A.D.2d 545
• Parties: GTE AUTOMATIC ELECTRIC INC., Plaintiff-Appellant, v. MARTIN'S INC., Defendant-Respondent.
• Court: New York Supreme Court — Appellate Division

Page 107

512 N.Y.S.2d 107

127 A.D.2d 545

GTE AUTOMATIC ELECTRIC INC., Plaintiff-Appellant, v. MARTIN'S INC., Defendant-Respondent.

Supreme Court, Appellate Division,

First Department.

Feb. 26, 1987.

A. Weinberg, New York City, for plaintiff-appellant.

H.L. Wolff, New York City, for defendant-respondent.

Before KUPFERMAN, J.P., and SULLIVAN, KASSAL, ELLERIN and WALLACH, JJ.

MEMORANDUM DECISION.

Order, Supreme Court, New York County (Irving Kirschenbaum, J.), entered October 28, 1985, denying plaintiff's motion for summary judgment, unanimously affirmed, without costs or disbursements.

Plaintiff seeks to recover the balance due on two promissory notes, executed in conjunction with two separate transactions for the sale of telephone communications systems to defendant. The answer interposes three counterclaims, raising in issue the alleged defective quality of the equipment and fraudulent representations, which induced defendant to enter into the agreements, concerning certain savings which would result from the use of GTE equipment. Defendant claims that the telephones did not perform as represented and further, when it sought to relocate the system to its division in Puerto Rico, it learned that the equipment was "obsolete", although only three years old and although it had been represented to be GTE equipment, it "was actually substitute Japanese equipment." As a result, it discontinued further payments, claiming that there had been material misrepresentations in that it had been sold "improper equipment", it paid "substantially in excess of a fair price" and "the equipment installed may not have been that which was ordered".

In our view, Special Term properly denied the motion for summary judgment. Bearing in mind the limited function of the court on such motion as issue-finding, not issue-determination (Sillman v. Twentieth Century-Fox, 3 N.Y.2d 395, 404, 165 N.Y.S.2d 498, 144 N.E.2d 387), the fraudulent inducement claims, in the counterclaims, may be considered and do raise triable issues of fact sufficient to deny summary judgment relief (see, Millerton Agway Coop. v. Briarcliff Farms, 17 N.Y.2d 57, 268 N.Y.S.2d 18, 215 N.E.2d 341). Even where an agreement includes a general merger clause, the Court of Appeals has held that the parol evidence rule does not bar admission of proof of fraudulent misrepresentations in an action to rescind the contract (Sabo v. Delman, 3 N.Y.2d 155, 161, 164 N.Y.S.2d 714, 143 N.E.2d 906; Crowell-Collier Publishing Co. v. Josefowitz, 5 N.Y.2d 998, 184 N.Y.S.2d 859, 157 N.E.2d 730). In our case, the promissory notes do not contain a merger clause nor is there any language to bar parol evidence of fraudulent misrepresentations. While the promissory notes do provide that the obligation is "absolute and unconditional", there was similar language in the guarantee in Millerton Agway, supra, language which the Court in that case held insufficient to preclude proof of fraud in the inducement.

Citibank v. Plapinger, 66 N.Y.2d 90, 495 N.Y.S.2d 309, 485 N.E.2d 974, relied upon by appellant, is inapposite here. In Plapinger, an action was brought by four banks against shareholders who had executed a guarantee as individuals of the corporate obligation in return for an extension of credit by the banks. After the corporation defaulted and filed a voluntary petition in bankruptcy, the action was brought against the guarantors, who interposed defenses and counterclaims that the banks had fraudulently misrepresented that an additional...