A Properly Drafted Non-Reliance Clause Can Bar Fraud Claims

A well-drafted non-reliance clause will bar a later-asserted claim for common law fraudulent misrepresentation or fraudulent inducement.  A non-reliance clause should not be confused with an integration clause.  An integration clause (also called a merger clause) provides that the contract to be signed represents the final agreement, merges all prior versions of the contract, and supersedes any prior discussions or versions of the contract.  In essence, an integration clause prevents claims based on agreements reached during the negotiations that led to the signing of the contract which were not written into the contract itself.  An example of an integration clause is: “This agreement constitutes the entire agreement between the parties and supersedes all prior agreements, representations, warranties, statements, promises, and understandings, whether oral or written.”

In a situation where a party to a contract containing an integration clause claims that she was induced into signing the contract by fraudulent misrepresentations (i.e., statements made outside of the contract), Illinois law is clear that an integration clause does not bar a fraud suit.  The principle underpinning the general rule that an integration clause cannot bar a fraud claim is that, as one court has put it: “fraud is a tort, and the parol evidence rule is not a doctrine of tort law, and so an integration clause does not bar a claim for fraud based on statements not contained in the contract. * * * [A]ll an integration clause does is limit the evidence available to the parties should a dispute arise over the meaning of the contract.  It has nothing to do with whether the contract was induced by fraud.

While an integration clause would not bar a fraud claim, a non-reliance clause can.  An example of a non-reliance clause is: “The parties hereto, in executing this agreement, do not rely on any inducements, promises or representations other than such as are expressly contained in this agreement.”  Illinois law is clear that if a contracting party signs an agreement containing a non-reliance clause that disclaims reliance on representations made outside of the contract, then the party cannot thereafter maintain a claim for fraud.  This is a logical rule, given that it is hardly justifiable for someone to rely on something that they have agreed not to rely on, and without justifiable reliance, there can be no fraud.

If you would like to schedule a consultation to prepare, revise, or review your contracts or if you are involved in litigation involving a contract, please contact Mitchell S. Chaban at mchaban@lgattorneys.com (312) 368-0100.