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Keywords

contractplaintiffappealpatentrescission
contractplaintiffdefendantappealpleamotionpatentlease

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Sabo v. Delman, 3 N.Y.2d 155, 143 N.E.2d 906, 164 N.Y.S.2d 714, 114 U.S.P.Q. 358

Facts

The plaintiff, an employee of Delman, Inc., invented a machine and cutting device, and entered into agreements with Herman Delman for their exploitation. The plaintiff alleged that Delman made false representations to induce him to assign his patent rights and enter into contracts, claiming that Delman would finance the manufacture and promote the sale of the machine. The plaintiff contended that Delman never intended to fulfill these promises and that he only discovered the fraud in 1954, suffering irreparable damage as a result.

The complaint further alleges that the representations, made to induce the plaintiff to make the assignment and the contracts, were ‘false,’ that defendant Delman ‘knew they were false’ and made them ‘fraudulently, falsely and deceitfully, wrongfully contriving and intending to deceive, defraud and injure’ the plaintiff and that he ‘relied’ on the representations, believing them to be true and ‘was thereby induced’ to make the assignment and execute the contracts in question.

Issue

Was the complaint sufficient to state a cause of action for rescission based on fraud, or was it properly dismissed by the Special Term?

On this appeal, here by permission of the Appellate Division, a certified question calls upon us to say whether the court at Special Term was correct in granting defendants' motion for judgment on the pleadings dismissing the complaint.

Rule

A contractual promise made with the undisclosed intention not to perform it constitutes fraud, and a complaint alleging such fraud is sufficient to state a cause of action for rescission.

In short, a contractual promise made with the undisclosed intention not to perform it constitutes fraud and, despite the so-called merger clause, the plaintiff is free to prove that he was induced by false and fraudulent misrepresentations to assign his patents and execute the agreements.

Analysis

The court found that the allegations of false representations made by Delman, which induced the plaintiff to assign his patent rights, were sufficient to establish a cause of action for fraud. The court emphasized that the parol evidence rule does not apply in cases of fraud, allowing the plaintiff to introduce evidence of the alleged fraudulent misrepresentations despite the existence of a merger clause in the contracts.

The representations of the defendant Delman in this case, that he would finance plaintiff's machine and use his best efforts to promote its sale and lease, related to something to occur in the future, but that does not prevent the plaintiff from relying upon them in an action brought to avoid the contracts which they induced.

Conclusion

The Court of Appeals reversed the dismissal of the complaint, stating that it adequately stated a cause of action for rescission based on fraud, and remitted the matter for further proceedings.

The order of the Appellate Division should be reversed and the motion for judgment on the pleadings denied, with costs in all courts.

Who won?

The plaintiff prevailed in the case because the court found that the allegations of fraud were sufficient to warrant further proceedings.

The Court of Appeals ultimately held that the complaint was sufficient to state a cause of action.

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