May 2, 2008

Exclusive Remedy Clauses and Extra-Contractual Disclaimers

Many thanks to Broc for inviting me to join the blog. I thought I’d use my first post to flag a new case out of Delaware – from the Superior Court, not the Court of Chancery.

In Transched Systems Ltd. v. Versyss Transit Solutions, LLC, 2008 WL 948307 (Del. Super. Ct. Apr. 2, 2008), the court dismissed negligent misrepresentation claims allegedly made by a seller while negotiating an asset purchase agreement. The court had no trouble dismissing the claim in light of the contract’s exclusive remedy provision:

The foregoing indemnification provisions shall constitute the sole and exclusive remedy for monetary damages in respect of any breach of or default under this Agreement by any Party and each Party hereby waives and releases any and all statutory, equitable, or common law remedy for monetary damages any Party may have in respect of any breach of or default under this Agreement.

The court also relied on an integration clause and the following extra-contractual disclaimer:

Except as expressly set forth [herein], Sellers make no representation or warranty, express or implied, at law or in equity, in respect of any of its assets (including, without limitation, the Acquired Assets), or operations, including, without limitation, with respect to the merchantability or fitness for any particular purpose. Buyer hereby acknowledges and agrees that, except to the extent specifically set forth [herein], Buyer is purchasing the Acquired Assets “as-is, where-is.” Without limiting the generality of the foregoing, Seller makes no representation or warranty regarding any assets other than the Acquired Assets or any liabilities other than the Assumed Liabilities, and none shall be implied at law or in equity.

This case is one of many Delaware decisions blessing specific contract language that can limit a party’s remedies to indemnification (except for fraud). It’s also a good reminder for buyers and sellers of the significance of extra-contractual disclaimers.

Here’s a summary of the case from Morris James.

Steve Haas, Hunton & Williams