Purchase agreements in private merger and acquisition transactions typically
contain provisions to circumscribe the promises (embodied in the parties’
respective representations and warranties) that each party has relied
on in entering into the transaction. If appropriately drafted, these non-reliance
provisions can preclude fraud claims related to extra-contractual statements,
which are statements of a party not specifically contained in the purchase
agreement. However, courts historically have interpreted non-reliance
provisions carefully to exclude extra-contractual fraud claims only where
the intent to do so is explicit.
Recently the Delaware Court of Chancery, in
FdG Logistics LLC v. A&R Logistics Holdings, Inc., continued to develop the principles stemming from a recent line of cases and distinguished several conflicting outcomes on the effect of non-reliance
FdG Logistics, the court found that a non-reliance provision drafted in a merger agreement
could not prevent the buyer from asserting claims of fraud based on alleged
extra-contractual misrepresentations where the provision did not contain
an affirmative disclaimer of reliance by the
buyer. This means that instead of the often-seen language whereby the seller
expresses it has made no representation or warranty except as set forth
in the agreement and all other representations and warranties are disclaimed,
the buyer must affirmatively state it is disclaiming reliance on statements
not contained in the agreement. While this distinction may appear technical,
the court finds it important given the strong public policy against fraud.
Even though the court reaffirmed that Delaware law does not require specific
“magic words” to disclaim reliance, the non-reliance provision
must be an affirmative expression from the perspective of the aggrieved
party rather than from the perspective of the party accused of fraud,
in order to give effect to the disclaimer.
The court also reiterated its existing position that generic “merger
clauses,” which state that the agreement constitutes the entire
agreement between the parties and supersedes any prior understandings,
agreements or representations by or between the parties would not be sufficient,
on their own, to preclude potential claims for reliance on extra-contractual
Fdg Logistics is another reminder of the importance of careful and clear drafting by
counsel, and non-reliance provisions are no exception to that rule.
For more information on the topic discussed, contact
David R. Lallouz at
*A special thanks to
Andrew Yacyshyn for his contributions to this article.
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 131 A.3d 842 (Del. Ch. 2016).
 See, in particular,
Abry Partners V, L.P. v. F & W Acquisition, 891 A.2d 1032 (Del. Ch. 2006), and
Prairie Capital III, L.P. v. Double E Holding Corp., 132 A.3d 35 (Del. Ch. 2015).