MIAMI BUSINESS LITIGATION: CONTRACTUAL DISCLAIMERS OF FRAUDULENT INDUCEMENT

Sellers and buyers have competing interests when negotiating a contract. One term sellers and buyers should consider when negotiating their purchase agreement is the fraudulent inducement disclaimer provision. These provisions can help sellers avoid or defeat lawsuits if the buyer develops “buyer’s remorse” after entering the agreement because the buyer cannot claim the seller’s representations tricked him or her into entering the purchase agreement. However, fraudulent inducement disclaimer provisions may harm buyers by preventing them from asserting an otherwise legitimate fraudulent inducement claim against the seller. Peter Mavrick a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

The general rule of contracts prohibits parties from disclaiming fraudulent inducement because contracting parties are entitled to rely on each other’s representations before entering a contract. The Supreme Court of Florida explained in Oceanic Villas Inc. v. Godson, 4 So. 2d 689 (Fla. 1941), that “[i]t is well settled that a party can not [sic] contract against liability for his own fraud.” Florida’s appellate courts have generally reiterated this legal principle concerning exculpatory clauses concerning fraud. Mankap Enters., Inc. v. Wells Fargo Alarm Servs., a Div. of Baker Protective Servs., Inc., 427 So. 2d 332 (Fla. 3d DCA 1983) (“A party cannot contract against liability for his own fraud in order to exempt him from liability for an intentional tort, and any such exculpatory clauses are void as against public policy.”); Zuckerman-Vernon Corp. v. Rosen, 361 So. 2d 804 (Fla. 4th DCA 1978) (“A party cannot contract against liability for his own fraud in order to exempt him from liability for an intentional tort.”); see also HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So. 2d 1238 (Fla. 1996) (“The interest protected by fraud is a plaintiff’s right to justifiably rely on the truth of a defendant’s factual representation.”) However, disclaimer is permitted in limited circumstances when contracting parties “expressly state that [the contract] is incontestable on the ground of fraud.” Global Quest, LLC v. Horizon Yachts, Inc., 849 F. 3d 1022 (11th Cir. 2017) (summarizing the holding in Oceanic Villas). The enforceability of a fraudulent inducement disclaimer depends on the provision’s specificity because it is so draconian. Bank of Am., N.A. v. GREC Homes IX, LLC, 2014 WL 351962, at *6 (S.D. Fla. Jan. 23, 2014) (“‘A party cannot contract against liability for his own fraud[,]’ absent specific contractual language to the contrary.”).

Courts allow disclaimers of fraudulent inducement for several reasons. Courts presume contracting parties read the contract before agreeing to its terms. In Billington v. Ginn-La Pine Island, Ltd., 192 So.3d 77 (Fla. 5th DCA 2016), Florida Fifth District Court of Appeal explained that the “law necessarily presumes that parties to a contract have read and understood [the contract’s] contents.” The Billington appellate decision added that prohibiting fraudulent inducement disclaimers would prevent parties from protecting “themselves against those who would fabricate claims of fraud to avoid the consequences of a contractual obligation.” The appellate court also referenced that the sanctity of a contract and predictability of an outcome, together, take precedence over claim waiver when the parties clearly manifest their intent to avoid fraudulent inducement claims

Fraudulent inducement waivers can place buyers and sellers in antagonistic positions. Sellers will likely want to include contract provisions in which the buyer specifically agrees to disclaim his or her ability to contest the contract due to the seller’s representations or fraudulent inducements. Conversely, buyers will likely want to prevent the inclusion of any provision disclaiming his or her right to rely on a seller’s pre-contract representations or to sue for fraudulent inducement.

A middle ground, however, is attainable. The parties can agree on the inclusion of a specific set of representations made by the seller that induced the buyer into the purchase agreement. The parties can then disclaim all other representations not specifically identified in the contract. For example, the Eleventh Circuit Court of Appeals in SEB S.A. v. Sunbeam Corp., 148 F. App’x 774 (11th Cir. Aug. 12, 2005), explained that “Florida law consistently recognizes that ‘a basic tenet of contract law that reliance on representations by a contracting party in a suit based on the contract is unreasonable where the representations are not contained in the subsequent written agreement between the parties.’ This rubric allows the buyer some ability to claim fraud if the seller was not truthful, while also prohibiting the buyer from fabricating a disingenuous fraud claim just to get out of the contract.

Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.