Walking the Tightrope: Limiting Fraud Claims Based on Extra-contractual Statements and Omissions

Roxanne L. Houtman and Catherine A. Schmierer

For decades, courts around the country have struggled with whether to enforce, and how to interpret, contractual disclaimers that limit liability for fraud based on extra-contractual statements and omissions. These disclaimers – typically referred to as “anti-reliance clauses” or “non-reliance clauses” – most often take the form of a representation by one or both of the parties disclaiming reliance on statements made outside the four corners of the agreement. Sophisticated parties typically include anti-reliance clauses in negotiated agreements to establish what information they did and did not rely upon when entering into the transaction. These provisions are also used as a means to eliminate the threat of tort claims (namely, fraud) based on oral statements that are not reduced to a representation within the definitive agreements. Anti-reliance provisions are particularly important for sellers: although indemnification deductibles and caps define the scope of a party’s post-closing liability for breaches of contractual representations, the same often will not apply to tort-based claims premised on extra-contractual statements. As a result, selling parties are particularly motivated to eliminate the potential for fraud-based claims to the greatest extent possible.

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