Arthur LaFazia and Dennis Gasrow (Plaintiffs) sold their deli to James and Theresa Howe (Defendants), who had no delicatessen experience but had owned a jewelry store for twenty years. The Plaintiffs later sued to enforce the promissory note for Defendants’ purchase of the business, and the Defendants counterclaimed that Plaintiffs had made specific misrepresentations to induce them to enter into the contract.
The law recognizes and enforces merger and disclaimer clauses in contracts.
The Defendants at first doubted the profitability of the business. The Plaintiffs showed the Defendants their tax returns, but said that since they always paid in cash and didn’t keep good records, the tax returns did not reflect the true figures of the business. They also showed the Defendants their fancy cars and homes, and pointed out that Gasrow supported a family with three children. Finally, the Defendants decided to purchase the deli, and were represented by their son, an attorney. Included in the Memorandum of Sale were merger and disclaimer clauses that they relied on their own judgment as to the prospective profit of the business; that no representations or warranties were made by the Seller; and that the agreement constituted the entire agreement.
After purchasing the deli, Defendants realized that they “had been taken,” as the deli was not as profitable as they had hoped. They eventually sold the business at a loss and had $10,000 outstanding on their promissory note to the Plaintiffs. The Plaintiffs sued, and Defendants counterclaimed that Plaintiffs had made specific misrepresentations to induce them to enter into the contract.
The trial judge granted summary judgment to the Plaintiffs, and Defendants appealed
Were Defendants entitled to a rescission of the contract?
· After the Defendants realized they were “taken,” they continued to make payments on the promissory note. They did not demonstrate by their words or action that the contract was rescinded. Even in their counterclaim, Defendants never brought up their claim for rescission.
· There was no issue of material fact and summary judgment was appropriate because the merger and disclaimer clauses precluded Defendants from asserting that Plaintiffs made material misrepresentations regarding the profitability of the business.
· Defendants’ counterclaim did not allege they had not read the contract, and both parties were represented by counsel at the closing. Therefore, Defendants’ asserted reliance on Plaintiffs’ statements regarding the profitability of the business was not justifiable.
The merger and disclaimer clauses in the contract prevented the Defendants from successfully claiming reliance on prior representations of the Plaintiffs.