Corporate & Securities Law

Update Regarding ?Fraud? and ?Intentional Misrepresentation?: Let?s Get Rid of Them!

By Ken Adams

Here are some follow-up thoughts prompted by reader Chad’s comment to my recent post on use of the couplet fraud or intentional misrepresentation in indemnification provisions.

Chad suggested that although fraud includes intentional misrepresentation, at least three state courts have treated the terms fraud and intentional misrepresentation as synonyms. That doesn’t worry me, because if you use in the contract just the word fraud, those courts wouldn’t conclude that a claim for intentional misrepresentation falls outside the scope of the provision.

But of greater concern was Chad’s suggestion that the elements of a claim for misrepresentation are different from the elements of a claim for fraud. That might lead a court to treat a reference to fraud not as an umbrella term that covers various kinds of claims but instead as a reference to a kind of claim, one distinct from a claim for intentional misrepresentation.

That we’re even discussing these niceties leads me to a conclusion that I should have come to earlier: referring to fraud and intentional misrepresentation at all is a losing proposition. Using fuzzy doctrinal terms is conducive to confusion. So I say let’s get rid of them and refer instead to the underlying actions.

So rather than refer to “any claim for fraud or intentional misrepresentation,” how about saying “any claim that the Indemnifying Party supplied one or more Indemnified Parties with information that the Indemnifying Party knew or should have known was inaccurate or any claim that the Indemnifying Party withheld information from one or more Indemnified Parties.”

How does this language relate to the “entire agreement” provision? As a rule, a merger provision doesn’t prevent a party from introducing parol evidence to show fraud.

And note that with this language I attempted to exclude from its scope an “honest mistake,” a concept Chad mentioned in his comment.

Sure, this new language is wordy. But that’s a small price to pay for getting rid of words that wrap a contract in fog.

Full post as published by AdamsDrafting on February 06, 2010 (boomark / email).