To prove a fraud (and by extension, fraud by non-disclosure) claim, you must prove that you “relied” on a representation or a nondisclosure of a representation. A representation may be a:
False Statement of Fact: a statement of fact that is untrue, deceptive, or a misleading statement concerning a past or present fact.
False Statement of Opinion: an opinion the defendant knows to be false or an opinion based on false facts.
False Promise of Future Performance: a promise with no intention of performing it.
False Representation by Conduct: conduct that creates a false understanding — for example, using scented candles to mask permanent, offensive home odor from the home-buyer.
A “disclaimer of reliance clause” can undermine your ability to bring a fraud claim by causing you to factually admit that you did not “rely” on a representation that is the subject of the fraud. Such reliance is a necessary element of a fraud claim. If you cannot prove reliance, your fraud claim will fail.
Defendants sometimes claim that a “merger clause” (a.k.a., integration clause) constitutes a “disclaimer of reliance clause” in an attempt to defeat fraud claims. Those efforts fail in a court of law.
Distinction between a “Disclaimer of Reliance Clause” and a “Merger Clause”:
“Disclaimer of Reliance Clause:” a factual admission by you that you did not rely on a representation.
“Merger Clause” – a.k.a., “Integration Clause:” an agreement between the parties that the subject written agreement contains all of the contractual duties between the parties.
In essence, a merger clause clearly defines the universe of contractual duties between the parties but does not necessarily relate to the representations made between the parties during the negotiation of the contract. Simply put, a “contractual duty” is a concept different from a “representation.” On the other hand, disclaimer of reliance clauses do relate to representations. To be effective, the disclaimer of reliance clause must contain an admission undermining reliance on a representation.
Italian Cowboy: In 2011, the Texas Supreme Court clearly distinguished a “disclaimer of reliance clause” and “merger clause.” The contract that was at issue in Italian Cowboy contained the following clauses:
14.18 Representations. Tenant acknowledges that neither Landlord nor Landlord’s agents, employees or contractors have made any representations or promises with respect to the Site, the Shopping Center or this Lease except as expressly set forth herein.
14.21 Entire Agreement. This lease constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and no subsequent amendment or agreement shall be binding upon either party unless it is signed by each party.
Italian Cowboy Partners v. Prudential Ins., 341 S.W.3d 323 (Tex. 2011). The Court deemed those clauses to constitute, in aggregate, a merger clause, id. at 328, and made the following statements.
We recognized decades ago that agreeing to a merger clause does not waive the right to sue for fraud should a party later discover that the representations it relied upon before signing the contract were fraudulent.
Id. at 327 (emphasis added).
Here, the only plain reading of the contract language in sections 14.18 and 14.21 is that the parties intended to include a well-recognized merger clause. Nothing in that language suggests that the parties intended to disclaim reliance.
Id. at 327.
Here, the contract language was not clear or unequivocal about disclaiming reliance. For instance, the term ‘‘rely’’ does not appear in any form, either in terms of relying on the other party’s representations, or in relying solely on one’s own judgment.
Id. at 336.
Disclaimer of Reliance Clause Language: To help you determine if your contract contains a disclaimer of reliance clause, I list the clauses of several contracts that courts have found to be disclaimer of reliance clauses.
Swanson v. Schlumberger Technology Corp., 895 S.W.2d 719 (Tex. App.-Texarkana 1994) rev’d. 959 S.W.2d 171 (Tex. 1997) (The clause is not published in the Supreme Court’s opinion but is contained in the opinion of the Court of Appeals).
“…[E]ach of us expressly warrants and represents … that no promise or agreement which is not herein expressed has been made to him or her in executing this release, and that none of us is relying upon any statement or representation of any agent of the parties being released hereby. Each of us is relying on his or her own judgment and each has been represented by Hubert Johnson as legal counsel in this matter. The aforesaid legal counsel has read and explained to each of us the entire contents of this Release in Full, as well as the legal consequences of this Release, and we each understand that this Release in Full shall operate as a full and complete and final release and settlement of any and all claims referred to above.”
Forest Oil Corporation v. McAllen, 268 S.W.3d 51 (Tex. 2008).
“[2] Each of the Plaintiffs and Intervenors expressly warrants and represents and does hereby state and represent that no promise or agreement which is not herein expressed has been made to him, her, or it in executing the releases contained in this Agreement, and that none of them is relying upon any statement or any representation of any agent of the parties being released hereby. Each of the Plaintiffs and Intervenors is relying on his, her or its own judgment and each has been represented by his, her, or its own legal counsel in this matter. The legal counsel for Plaintiffs have read and explained to each of the Plaintiffs the entire contents of the releases contained in this Agreement as well as the legal consequences of the releases …”
Playboy Enters. Inc. v. Editorial Caballero S.A. de C. V, 202 S.W.3d 250 (Tex. App. – Corpus Christi, 2006, pet. denied).
“…this Agreement represents the entire understanding of the parties. None of the terms of this Agreement can be waived or modified except by an express agreement in writing signed by the parties. There are no representations, promises, warranties, covenants or undertakings other than those contained in this Agreement.”
Yzaguirre v. KCS Resources, Inc., 47 S.W.3d 532, 542-43 (Tex. App.- Dallas, 2000).
“It is understood and agreed that this Settlement Agreement contains the entire agreement between the parties relating to all issues involving the Fantina Yzaguirre leases. No oral understandings, statements, promises or inducements contrary to this Settlement Agreement exist. This Settlement Agreement cannot be changed or terminated orally, and any modifications shall be recognized by the parties only if they are in writing and executed by the appropriate parties.”
1900 SJ, Inc. v. Washington National Insurance Company, 1998 W.L. 386407 (Tex. App. – Houston [1” Dist.] 1998, pet. denied).
“(C) PURCHASER AGREES THAT PURCHASER WILL EXAMINE AND INVESTIGATE THE PROJECT PRIOR TO THE EXPIRATION OF THE FEASIBILITY PERIOD AND THAT PURCHASER SHALL RELY SOLELY UPON SUCH EXAMINATIONS AND INVESTIGATION IN PURCHASING THE PROJECT AND IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT SELLER IS MAKING NO REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE, WITH RESPECT TO (i) ENVIRONMENTAL MATTERS OF ANY NATURE OR KIND WHATSOEVER RELATING TO THE PROPERTY OR ANY PORTION THEREOF; … (x) THE COMPLIANCE OR NON-COMPLIANCE OF ANY OF THE PROPERTY TO ANY APPLICABLE MUNICIPAL OR GOVERNMENTAL BUILDING CODES, ORDINANCES, RULES OR REGULATIONS; (xi) THE HABITABILITY OF THE PROJECT; AND (xii) THE VALUE, COMPLIANCE WITH SPECIFICATIONS, LOCATION, USE, MERCHANTABILITY, HABITABILITY, DESIGN, QUALITY, DESCRIPTION, DURABILITY, OPERATION OR CONDITION OF THE PROJECT OR ANY PORTION THEREOF FOR PURCHASER’S PURPOSES OR FITNESS FOR ANY USAGE OR PURPOSE WHATSOEVER. PURCHASER HEREBY AGREES THAT PURCHASER IS ACCEPTING THE PROJECT IN ITS “AS IS, WHERE IS, WITH ALL FAULTS” PRESENT CONDITION, SUBJECT TO ALL DEFICIENCIES OR OTHER MATTER, WHETHER KNOWN OR UNKNOWN … No representations or warranties have been made by Seller relating to the presence of hazardous substances in or on the Property, or that the condition or use of the Property is in compliance with any or all Federal, State or local ordinances, rules, regulations or laws, building or zoning ordinances, or other similar laws …”
RAS Group, Inc. v. Rent-A-Center East, Inc., S.W.3d _, 2010 W.L. 4400511 (Tex. App.- Dallas, 2010).
“Buyer has relied solely on it own investigation and it has not relied upon any oral or written information provided by Seller and/or Advisor or its personnel or agents and acknowledges that no employee or representative of Seller and/or Advisor has been authorized to make, and that Buyer has not relied upon, any written statements other than those specifically contained in this Agreement.”
Prudential Insurance Company v. Italian Cowboy Partners, Ltd., 270 S.W.3d 192 (Tex. App. Eastland, 2008, pet. granted March 10, 2010).
“14.18 Representations. Tenant acknowledges that neither Landlord nor Landlord’s agents, employees or contractors have made any representations or promises with respect to the Site, the Shopping Center or this Lease except as expressly set forth herein.”
In Conclusion: You should consult with an attorney regarding your specific situation. We have experience and methodologies for prosecuting fraud claims. These methods require detailed examination of the applicable contractual documents and communications between the parties. That is, even if your contract contains a disclaimer of reliance clause, we may be able to limit its enforceability.
Written by:
Mark A. Fassold
Watts Guerra LLP
4 Dominion Drive, Bldg 3, Suite 100
San Antonio, TX 78257
Office (210) 447-0500
© Watts Guerra LLP 2015
