Intention Not to Perform Contract Cannot Be Basis of Fraudulent Inducement Claim

On September 21, 2018, Justice Sherwood of the New York County Commercial Division issued a decision in Bryan v. Slothower, 2018 NY Slip Op. 32396(U), holding that an intention not to perform cannot be the basis of a fraudulent inducement claim, explaining:

Plaintiff argues that Slothower's alleged preconceived intent not to perform is sufficient to sustain the fraud in the in the inducement claim, citing White v Davidson (150 AD3d 610, 611 [1st Dept 2017]). In White, the First Department held the plaintiff had pleaded a cognizable claim for fraudulent inducement based on misrepresentations that the defendant had promised or claim (1) their record label was highly successful and that they had previously successfully represented famous recording artist; (2) they would promote plaintiff's single; (4) they would organize a radio tour; and (5) they would promote the re-release of the single around Valentine's Day 2015. The court found that these misrepresentations were collateral to the agreement at issue and therefore could support the claim asserted. The representation at issue here, that defendant would pay plaintiff, is not collateral to the contract. It is a term of the agreement.

Plaintiff also relies on Neckles Builders, Inc. v Turner (117 AD3d 923, 924 [2d Dept 2014]). In that case, the Second Department stated that where the gravamen of the alleged fraud does not arise from the mere failure of a promisor harbored an undisclosed intention not to perform under the contract, a proper cause of action sounding in fraud may be stated. Here, the heart of the alleged fraud is defendant's failure to perform while still obtaining a release. The alleged misrepresentation of Slothower's intent to perform under the Settlement Agreement cannot sustain a fraudulent inducement claim.

(Internal quotations omitted).

Commercial litigation frequently involves fraud-based claims. Such claims have special pleading requirements such as the rule discussed here that a fraud claim cannot be based on a breach of contract. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a fraud-based claim.