Can a Contract Limit Liability for Fraud?
Can a contract limit liability for fraud in the contract itself?
The Conglomerate Blog notes of a recent Delaware case deciding on a "non-reliance provision" in a contract. Briefly, a contract for the sale of a company included a provision that limited the seller's liability for any misrepresentation. The buyer later filed suit. The court held that it would be against public policy of the State of Delaware to enforce a non-reliance provision that protected a party who made misrepresentations with "an illicit state of mind."
The "illicit state of mind" language comes in because the misrepresentations at issue were in the purchased company's financial statements - which were prepared by a third-party. The court in the case ruled that the provision was ineffective if either: 1) the Seller knew that the Company's contractual representations and warranties were false; or 2) the Seller itself lied to the Buyer about a contractual representation and warranty. It looks like the court's holding, then, is limited to intentional misprepresentation, and does not extend to negligent misrepresentation.