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Vendors, consider a no-reliance clause for your sales contracts, to help forestall claims of fraudulent misrepresentation

When technology deals go bad and everyone starts pointing fingers, claims of fraudulent misrepresentation are often a weapon of choice for customers’ lawyers in suing vendors. We saw that in two recent cases involving world-renowned software- and services vendors.

To help preclude such customer claims, vendors should consider in­clu­ding a ‘no-reliance clause’ in their contracts. Such clauses typically say that the customer is not relying, and will not rely, on any rep­re­sen­ta­tions by the vendor or its personnel outside the four corners of the con­tract and the materials referenced by the con­tract.

In theory, such a no-reliance clause should kill a customer’s ability to claim fraudulent misrepresentation. That’s because, to succeed in such a claim, the cust­om­er normally must prove, not only that the vendor made a material misrepresentation or omission, but that the customer justifiably relied on the misstatement. If the customer represented in the contract that it was not so relying, and promised that it would not so rely, then it’d be tough for the customer later to claim fraud without being guilty of mis­rep­re­sen­ta­tion itself.

Courts have often upheld such clauses. But if it looked like the vendor lied or cheated, a court might very well look for ways to disregard the no-reliance clause. See generally Allen Blair, A Matter Of Trust:  Should No-Reliance Clauses Bar Claims for Fraudulent Inducement of Contract?, 92 Marquette L. Rev. 423 (2009).

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{ 2 comments… add one }
  • Martin 2010-05-11, 16:07

    Our standard reaction to this type of clause is 1) to delete it, and 2) to include in the agreement a list of all the material from the vendor we have relied on in deciding to enter into the agreement. If the vendor refuses we go through the list point by point and ask the vendor if each point is true or not. Quite a few vendors have been deselected as a result of this process.

  • D. C. Toedt 2010-05-11, 16:10

    @Martin, I like your #2, at least for significant deals — for smaller deals it might not be worth the hassle, but when there’s a lot at stake, what you suggest would be very useful as a planning exercise.

    See also the post I just put up, “Why tech vendors should consider providing a written risk-factors disclosure sheet

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