Acquisition agreements in private transactions often include a “non-reliance provision” in which the buyer represents that it has made its investment decisions based on its own knowledge and independent investigation—without regard to anything the seller has said or not said—or that the buyer only relied on the specific representations contained in the parties’ definitive agreement. Chief among the virtues of non-reliance provisions is that the contracting parties share an understanding of exactly what has and has not been represented, allowing each side to make a fair evaluation of the value of the transaction. Moreover, the buyer may be able to obtain a discounted price to compensate it for its assumed risk.
A non-reliance provision that is not boilerplate, but is instead the product of negotiation between sophisticated parties dealing at arm’s length, may also negate claims of reasonable reliance on any extra-contractual representations in a subsequent lawsuit alleging fraud related to the transaction. The effect of non-reliance provisions on a buyer’s claims premised on extra-contractual representations, however, has varied. The main line of division in the case law is whether a non-reliance provision renders reliance on extra-contractual representations unreasonable as a matter of law or is only evidence relevant to reliance—one of the elements of a prima facie claim for fraudulent misrepresentation.
