Texas Supreme Court Limits Fraudulent Inducement Claims When Allegations Contradict Contract Language

In Mercedes-Benz USA LLC et al. v. Carduco Inc. dba Cardenas Metroplex, No. 16-0644, the Texas Supreme Court further limited fraudulent inducements claims.  It determined that a company could not reasonably rely on representations made by the defendant leading up to the purchase of a car dealership because those representations were directly contradicted the express terms of the contract. 

According to Carduco, Mercedes represented that if Carduco purchased a dealership in Harlingen, Texas, at some point in the future, Carduco could move the dealership to the more desirable market of McAllen.   Mercedes, however, awarded the franchise to another dealer.  A jury found that Mercedes fraudulently induced Carduco into buying the Harlingen location and awarded $15.3 million in actual damages and $115 million in punitive damages.

At the Texas Supreme Court, the primary issue was whether Carduco’s belief that Mercedes had promised it the McAllen area was justified in light of the parties’ written agreement.   The court found that because the parties’ agreement only authorized Carduco to operate a dealership in Harlingen and specifically authorized Mercedes to establish other dealerships in the area, “the parties’ written agreement directly contradicts Carduco’s alleged belief and thereby negates its justifiable reliance as a matter of law.”  The Court found that Carduco had a duty “to protect its own interests through the exercise of ordinary care and reasonable diligence rather than blindly relying upon another party’s vague assurances.” In this case that duty “required it and its lawyers to edit the written contractual provisions stating that (Mercedes) could assign another dealer there and that Carduco had no right to any particular area.”

By: Nick Nelson

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