Avoiding-Misrepresentation-and-Fraud-Claims-in-Contracts

Avoiding Misrepresentation and Fraud Claims in Contracts

By Charlie Carlin

At Fortis Law Partners, we routinely handle disputes where the plaintiff alleges that the defendant fraudulently induced the plaintiff into entering into a business transaction. A common issue in those disputes is whether the plaintiff signed a contract in which the plaintiff affirmed that, in deciding to enter into the contract, he did not rely on any representations other than what was written in the contract. The defendant will then use that language from the contract to argue that the plaintiff cannot bring a successful fraud claim because the plaintiff already confirmed that he did not rely on any representations made precontracting.

In reality, it is not that simple. In Keller v. A.O. Smith Harvestore Products, Inc., 819 P.2d 69, 74 (Colo. 1991), the Colorado Supreme Court considered whether plaintiffs could bring a successful misrepresentation claim based on a contract that contained the following language:

Buyer recognizes that any advertisements, brochures, and other written statements which he may have read … as well as any oral statement which may have been made to him, concerning the potential of the Harvestore … are not guarantees and he has not relied upon them as such.

….

[Buyer has] read and understood the terms and conditions of this purchase order, including the warranties, disclaimers and terms and conditions herein given to me, either by the manufacturer or the seller. [Buyer relies] on no other promises or conditions and regards that as reasonable because these are fully acceptable to [Buyer].

In deciding that those provisions did not bar the plaintiffs’ misrepresentation claims, the Court noted that a “contract provision purporting to prohibit a party to the contract from asserting a claim of negligent misrepresentation must be couched in clear and specific language.” Id. Thus, because the language at issue in the contract in Keller did not “clearly and specifically disclaim reliance” by the plaintiffs on all representations made by the defendant prior to contracting, the plaintiffs could proceed on their misrepresentation claims. Id.The lesson from Keller is that if you are a party to a contract and want to foreclose any future misrepresentation or fraud claims related to that contract, insist that the contract include language that “clearly and specifically” says that neither party may bring a misrepresentation or fraud claim based on any alleged representations other than those specifically included in the contract.

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