Of Lies and Disclaimers - Contracting around Fraud under Texas Law.

Authors

Robert K. Wise
Andrew J. SzygendaFollow
Thomas F. LillardFollow

Abstract

The Texas Supreme Court has failed to provide a bright-line test in determining whether reliance disclaimers are enforceable. A reliance disclaimer is a provision in a contract that disclaims all extra-contractual representations and provides that the contracting parties are not relying on any such representations. By including a reliance disclaimer, a contracting party may be attempting to immunize itself from liability for false statements made during negotiations. Even if a contracting party’s misrepresentations or non-disclosures were made with fraudulent intent, Texas law gives contracting parties broad freedom to contract around misrepresentation claims. In Forest Oil Corp. v. McAllen, the Texas Supreme Court articulated that it is relevant for a court to consider: (1) if the terms of the contract were negotiated, rather than boiler-plate; (2) if the complaining party was represented by counsel; (3) if the parties dealt with each other in an arm’s length transaction; (4) if the parties were knowledgeable in business matters; and (5) if the release language was clear. The decisions from Texas case law suggest a party can effectively bar misrepresentation and non-disclosure claims by including several provisions in the contract. Examples of provisions to include in a contract to support a reliance disclaimer include, but not limited to, full disclosure provisions and no reliance on representation provisions. Furthermore, the contract’s recitals should detail the parties’ arm’s-length negotiations, describe the parties’ sophistication in business matters with respect to the contract’s subject matter, and identify the types of advisors assisting the parties in the contract’s negotiation and drafting. Finally, the provisions should be conspicuous and initialed by the parties. The suggested provisions are consistent with relevant Texas precedent and should be relevant in a court’s analysis of the enforceability of a reliance disclaimer.

Publisher

St. Mary's University School of Law

Recommended Citation

Robert K. Wise, Andrew J. Szygenda & Thomas F. Lillard, Of Lies and Disclaimers - Contracting around Fraud under Texas Law., 41 St. Mary's L.J. (2009).
Available at: https://commons.stmarytx.edu/thestmaryslawjournal/vol41/iss1/3