By Ron Holmes
Many a sophisticated client, and sophisticated lawyer, have drafted contracts that contain provisions which attempt to bar the buyer from bringing a claim against the seller for representations made by the seller or his representatives prior to the entering into of the contract.
Typically, such provisions may provide: “Buyer hereby acknowledges that Seller and Seller’s representatives have made no representations to Buyer or Buyer’s representatives other than as expressly set forth in this Agreement…” followed by “[T]his Agreement constitutes the full agreement between the parties concerning the subject matter hereof and there are no prior or contemporaneous agreements concerning the subject matter hereof.”
These two provisions, when combined, are commonly referred to as “merger” provisions and they are designed to preclude a lawsuit by the Buyer based upon representations allegedly made by the Seller prior to entering into the contract. Sounds simple, right? Unfortunately, that is not the case.
Standard “merger” provisions do not bar a fraudulent inducement suit
These “merger” provisions do not bar a suit by the buyer for fraudulent inducement of the contract based upon representations made by the seller to the buyer prior to the entering into of the contract. Surprised? Many people are.
In order to effectively bar a claim by a buyer for fraudulent inducement, the contract must contain an unambiguous disclaimer by the buyer of “reliance” upon any representation made by the seller or its representatives prior to the entering into of the contract. Such a provision may read as follows: “Buyer hereby expressly disclaims any reliance upon any representation made by Seller or its representatives prior to the entering into of this Contract and hereby waives any claim it might otherwise have for fraudulent inducement or fraud of any kind based upon any alleged representation of Seller or its representatives prior to the execution of this Contract.”
PRACTICE TIP: Don’t rely on that form of contract you have used for the last 20 years. Laws do change. We can help you with that. Contact me at via email or 469.916.7700 x105.