Opinion ID: 1785528
Heading Depth: 1
Heading Rank: 3

Heading: disclaimer of reliance

Text: Given that Schlumberger and the Swansons were dealing with each other at arm's length, we now turn to Schlumberger's contention that the disclaimer of reliance clause in the release precludes the Swansons' fraudulent inducement claim. It does. To support their fraudulent inducement claim, the Swansons alleged that Schlumberger made several affirmative misrepresentations during their negotiations over the withdrawal of Sedswan from the joint venture. The Swansons had seen an April 1986 Schlumberger evaluation that described the project as economical, but noted that the commerciality of the project would not be determined until 1988 or 1989. Despite the 1986 evaluation, and without having undertaken any later studies, Schlumberger represented to the Swansons that the project was neither technologically feasible nor commercially viable. In addition, Schlumberger represented that the project had a negative value and that Sedswan would be lucky to get out with its costs. At trial, the evidence was undisputed that there are diamonds on the ocean floor off South Africa. It was further undisputed that, as of the time of trial in 1993, no one had begun mining diamonds. Also, it was undisputed that Seltrust's successor sold its interest to DeBeers in 1992 for only slightly more than its project costs. On the other hand, there was substantial dispute about whether the project was technologically feasible or commercially viable. Schlumberger brings a point of error asserting that there is legally insufficient evidence of fraud, but it does not argue in its briefing in this Court that its representations about the project's technological or commercial infeasibility were immaterial, were merely opinion, or were either not knowingly made or not made without knowledge of the truth. See Prudential Ins. Co. v. Jefferson Assocs., 896 S.W.2d 156, 163 (Tex.1995). Accordingly, we assume, as we must, that Schlumberger misrepresented the project's technological feasibility and commercial viability and that such misrepresentations are actionable as fraudulent inducement. In this light, Schlumberger asks us to adopt a per se rule that the presence of independent legal counsel always precludes a claim that a party fraudulently induced a release. Texas law does not support such a rule. Texas law favors and encourages voluntary settlements and orderly dispute resolution. However, a release is a contract, and like any other contract, is subject to avoidance on grounds such as fraud or mistake. See Williams v. Glash, 789 S.W.2d 261, 264 (Tex.1990); Dallas Farm Mach. Co. v. Reaves, 158 Tex. 1, 307 S.W.2d 233, 236-37 (1957). Yet our early decisions are not entirely consistent. Several of our opinions conclude that a release could be set aside if it was induced by a fraudulent representation or promiseeven if the release contained language disclaiming that any such representation had been made. Other cases hold to the contrary. In Texas & Pacific Railway Co. v. Presley, 137 Tex. 232, 152 S.W.2d 1105 (Tex.1941), an injured worker settled his claim against his employer for $50, executing a release providing that he relied upon his own judgment as to the extent and duration of his injuries and that no promise of employment or other agreement not mentioned in the release had been made to him. Id. at 1106. The worker later sued to set aside the release, contending that his employer's doctor had misrepresented the extent of his injuries and that the employer had promised him permanent employment for executing the release, with no intention of fulfilling that promise. See id. We held that proof of these contentions would be sufficient to set aside the release. Id. at 1108. This could be done, we decided, even though the plaintiff may have read and understood the release. Id. at 1107. Similarly, in Edward Thompson Co. v. Sawyers, 111 Tex. 374, 234 S.W. 873 (1921), a buyer purchased a set of legal encyclopedias based on the seller's oral promise that it would continue to publish and deliver annual supplements for at least fifteen years. The buyer proved that the seller made this promise with no intention of fulfilling it. We held that this constituted fraud sufficient to set aside the agreement, even though the written contract provided that no representations or guaranties had been made by the seller that were not expressed therein. Promises made without intention of fulfillment, in order to induce others to make contracts, are as culpable and as harmful as are willful misrepresentations of existing facts. Hence contracts may be avoided alike for such fraudulent promises and for such misrepresentations. Id. at 874. We explained that, where a contract is induced by fraud, there is in reality no contract because there is no real assent to the agreement. Id. Thus, the defrauded party is not bound by any of the contractual provisions, including those relating to representations or guaranties which induced its execution. Id. at 874-75. There are other early cases, however, that reach the opposite result. For example, in Distributors Investment Co. v. Patton, 130 Tex. 449, 110 S.W.2d 47 (Tex.1937), the seller of a tractor sued the buyer on his promissory note. In defense, the buyer contended that the seller had fraudulently induced the transaction by orally misrepresenting the tractor's capabilities. The contract provided that the tractor was sold as is, and further provided that no other representations had been made. Id. at 48. We held that, in light of these contract provisions, an action for rescission could not be maintained on account of oral representations. Although recognizing that fraud vitiates a contract, we concluded that the fraud must be something more than merely oral representations that conflict with the terms of the written contract. Id. Instead, to vitiate the contract, the fraud must be such that it prevents the coming into existence of any valid contract at all. Id.; see also Avery Co. v. Harrison Co., 267 S.W. 254, 256 (Tex. Com. App.1924, judgm't adopted); J.I. Case Threshing Mach. Co. v. Manes, 254 S.W. 929, 931 (Tex. Com. App.1923, judgm't adopted); Wright v. Couch, 54 S.W.2d 207, 209 (Tex.Civ.App. Eastland 1932, no writ). In Dallas Farm Machinery Co. v. Reaves, 158 Tex. 1, 307 S.W.2d 233 (1957), we considered whether parol evidence was admissible, despite a merger clause in a written contract, to establish that a contract was induced by fraud. The seller brought suit against the purchaser of a tractor and loader for the balance due on the purchase contract. The buyer counterclaimed for rescission, claiming that he was fraudulently induced to contract by false representations about the work capacities of the tractor and loader. The seller argued that a merger clause providing that the contract was the entire contract relating to the sale and warranty of the equipment and that no warranty is made or authorized to be made other than herein set forth precluded the buyer's fraudulent inducement claim. Id. at 234. In resolving the parties' dispute, we considered the two lines of cases discussed previously and concluded that they represented conflicting lines of authority that could not be distinguished on any principled ground. See id. at 238-39. We resolved the conflict by holding, as a matter of policy, that a merger clause can be avoided based on fraud in the inducement and that the parol evidence rule does not bar proof of such fraud. See id. at 239. In doing so, we brought the law on the subject into harmony with the great weight of authority, with the rule of the Restatement of the Law of Contracts, and with the views of eminent textwriters. Id. (citations omitted). Juxtaposed to this authority, we have a competing concernthe ability of parties to fully and finally resolve disputes between them. Parties should be able to bargain for and execute a release barring all further dispute. This principle necessarily contemplates that parties may disclaim reliance on representations. And such a disclaimer, where the parties' intent is clear and specific, should be effective to negate a fraudulent inducement claim. As an example, a disclaimer of reliance may conclusively negate the element of reliance, which is essential to a fraudulent inducement claim. See Prudential, 896 S.W.2d at 161-62 (holding that agreement to buy property as is, in which buyer included voluntary, freely negotiated affirmation that he was depending on his own assessment of the building, precluded claim for damages when building was found to contain asbestos); Estes v. Hartford Accident & Indem. Co., 46 S.W.2d 413, 417-18 (Tex.Civ.App.El Paso 1932, writ ref'd) (affirming directed verdict upholding release where evidence conclusively negated reliance on alleged misrepresentations). The question is under which circumstances such disclaimers are binding. In this case, the Swansons contend that they agreed to Schlumberger's low-price buyout offer only after they were induced by misrepresentations about the value and feasibility of the sea-diamond project. We conclude that our well-established rules of contract interpretation govern whether the Swansons gave the requisite clear and unequivocal expression of intent necessary to disclaim reliance on these specific representations by Schlumberger. The contract and the circumstances surrounding its formation determine whether the disclaimer of reliance is binding. See Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 591 (Tex.1996); National Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex.1995); Prudential, 896 S.W.2d at 162. Because the parties were attempting to put an end to their deal, and had become embroiled in a dispute over the feasibility and value of the project, we conclude that the disclaimer of reliance the Swansons gave conclusively negates the element of reliance. In negotiating the release, highly competent and able legal counsel represented both parties and, as we have said above, the parties were dealing at arm's length. Further, both Schlumberger and the Swansons are knowledgeable and sophisticated business players. The Swansons have been involved in traditional diamond mining in South Africa for several decades. They and Schlumberger, a multinational corporation, were engaged in a business venture involving tens of millions of dollars and in negotiations to sell their interests ultimately for several million dollars. Significantly, throughout the parties' negotiations, the Swansons disagreed with Schlumberger about the feasibility and value of the sea-diamond project. Schlumberger never convinced the Swansons that DeBeers' offer was a good deal; four days before he signed the release, John Swanson wrote to his attorney that the Swansons' lease interest was worth billions. The Swansons seriously considered suing Schlumberger even before the sale to DeBeers and Seltrust. Indeed, the release states that the Swansons claimed that they had an interest in the mining consortium and in Schlumberger's prospecting lease, and that Schlumberger was liable to the Swansons in connection with the prospecting or exploration of diamonds or other precious stones or minerals in South Africa. In this connection, the release recites that there is considerable doubt, disagreement, dispute and controversy with reference to the validity of the Swansons' claim against [Schlumberger] and as to the legal or moral liability of [Schlumberger] for any amount of damages or justification for legal relief, and there is further doubt, disagreement, uncertainty and confusion as to the amount of said liability, if any. Further, the Swansons released all causes of action of whatsoever nature, or any other legal theory arising out of the circumstances described above, from any and all liability damages of any kind known or unknown, whether in contract or tort. The sole purpose of the release was to end the dispute about the value of this commercial project between Schlumberger and the Swansons once and for all. In this context and in clear language, the Swansons unequivocally disclaimed reliance upon representations by Schlumberger about the project's feasibility and value. They said: [E]ach of us [the Swansons] expressly warrants and represents and does hereby state ... and represent ... that no promise or agreement which is not herein expressed has been made to him or her in executing this release, and that none of us is relying upon any statement or representation of any agent of the parties being released hereby. Each of us is relying on his or her own judgment and each has been represented by Hubert Johnson as legal counsel in this matter. The aforesaid legal counsel has read and explained to each of us the entire contents of this Release in Full, as well as the legal consequences of this Release .... (emphasis added) Because courts are to assume that the parties intended every contractual provision to have some meaning, see Columbia Gas, 940 S.W.2d at 591; Lenape Resources Corp. v. Tennessee Gas Pipeline Co., 925 S.W.2d 565, 574 (Tex.1996), we must presume that the parties contemplated, by the inclusion of this clause, that the Swansons would not rely on any representations of Schlumberger about the commercial feasibility and value of this project, which, after all, was the very dispute that the release was supposed to resolve. Therefore, we conclude that the disclaimer of reliance is binding and, as a matter of law, precludes the Swansons' claim that they were fraudulently induced to sell their interest in the sea-diamond project. In sum, we hold that a release that clearly expresses the parties' intent to waive fraudulent inducement claims, or one that disclaims reliance on representations about specific matters in dispute, can preclude a claim of fraudulent inducement. We emphasize that a disclaimer of reliance or merger clause will not always bar a fraudulent inducement claim. See Prudential, 896 S.W.2d at 162 (identifying some circumstances in which as is clause would not preclude fraudulent inducement claim). We conclude only that on this record, the disclaimer of reliance conclusively negates as a matter of law the element of reliance on representations about the feasibility and value of the sea-diamond mining project needed to support the Swansons' claim of fraudulent inducement. As there is no evidence of a fiduciary or confidential relationship, the trial court correctly rendered a judgment notwithstanding the verdict against the Swansons on their claims of breach of fiduciary duty and fraudulent inducement.