Integration clauses typically state that an agreement is the entire and only agreement between parties, superseding any prior written or oral agreements. Similarly, “anti-reliance” language provides that the only representations on which the parties relied in deciding to enter the contract are those within the contract itself. Integration and anti-reliance clauses are commonly found in M&A agreements and contracts for other complicated transactions. The rationale behind such language is to limit a party’s recourse for misrepresentations made outside the agreement. The enforceability of such clauses varies by jurisdiction. As a recent Delaware Court of Chancery decision indicates, the law is constantly evolving even within jurisdictions.
Delaware courts have generally viewed integration clauses on their own as insufficient to preclude fraud claims stemming from representations or actions outside the contract at issue. Rather, courts looked for specificity as to what was being disclaimed and what had (or had not) been relied upon in entering the contract. Case law was unclear as to whether such provisions required specific language to be effective.
In the November 2015 decision Prairie Capital III, L.P. v. Double E Holding Corp., however, the Court of Chancery clarified that no “magic words” will render a provision enforceable; rather, an agreement “must contain language that, when read together, can be said to add up to a clear anti-reliance clause by which the plaintiff has contractually promised that it did not rely upon statements outside the contract’s four corners in deciding to sign the contract.” Prairie Capital III, L.P. v. Double E Holding Corp., 2015 WL 7461807 (2015), quoting Kronenberg v. Katz, 872 A.2d 568, 593 (Del. Ch. 2004). Still, while particular words are not required, the court emphasized that Delaware law enforces only those provisions “that identify the specific information on which a party has relied and which foreclose reliance on other information.” Prairie Capital, citing RAA Mgmt., LLC v. Savage Sports Hldgs., Inc., 45 A.3d 107, 118-19 (Del. 2012). This approach is similar to New York’s policy to enforce only those provisions drafted with specificity rather than boilerplate disclaimers.
Coming from the highly respected Delaware Court of Chancery, Prairie Capital serves as an important reminder of the importance of drafting contracts carefully, intentionally, and specifically.