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Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am. - 341 S.W.3d 323 (Tex. 2011)

Rule:

Pure merger clauses, without an expressed clear and unequivocal intent to disclaim reliance or waive claims for fraudulent inducement, have never had the effect of precluding claims for fraudulent inducement.

Facts:

Jane and Francesco Secchi negotiated a potential lease of the vacant restaurant building with Prizm's property management director, Fran Powell. During negotiations, Powell told the Secchis that the building was practically new and had no problems. The parties thereafter entered into the lease agreement, which contained a “Representations” clause, wherein the Secchis acknowledged that neither the Landlord nor the Landlord's agents, employees or contractors have made any representations or promises with respect to the Site, the Shopping Center or the Lease. The Secchis then experienced persistent sewer gas odor at the leased premises; they subsequently learned that the odor existed even for previous tenants and that Powell knew of the existence of such odor. Consequently, the Secchis sought to rescind the lease and recover damages for fraud and breach of the implied warranty of suitability. The landlord maintained that that rescission was not warranted and sought to recover for breach of contract. The trial court ruled in favor of the Secchis; however, the appellate court reversed. The Secchis sought further review from the Supreme Court of Texas.

Issue:

Did the lease contract contain a language that disclaim reliance or bar a claim based on fraudulent inducement?

Answer:

No.

Conclusion:

The Court held that the contract language did not disclaim reliance or bar a claim based on fraudulent inducement. According to the Court, the Representations Clause in the Agreement only amounted to a standard merger clause, an agreement to which did not waive the tenants’ right to sue for fraud upon their discovery of fraudulent representations employed by Powell. The Court held that Powell’s statements during lease negotiations that the property was practically new and problem-free were actionable material misrepresentations; and because the sewer gas odor was a problem for previous tenants, sufficient evidence established that those misrepresentations were known to be false when made.

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