Texas Supreme Court Affirms Power of Written Contracts

April 04 2019| News| | By Okin Adams

As most business owners know, having written contracts that are clear and concise is essential for successful operations. While oral agreements can be utilized in some situations, having a formal written contract when engaging with a customer or business partner is incredibly important. A good written contract will clearly set forth the understandings and expectations of the parties, and provide protection and clarity in the event of a dispute.

Issues arise when the contents of alleged oral discussions fail to match the terms of a subsequently-executed written contract. This was the subject of the Texas Supreme Court’s recent decision in Mercedes-Benz, LLC USA v. Carduco, Inc. (“Mercedes”), No. 16-0644, 2019 Tex. LEXIS 187 (Tex. Feb. 22, 2019).

In Mercedes, Carduco, Inc. (“Carduco”) claimed that it was fraudulently induced by Mercedes-Benz USA, LLC (“MBUSA”) into purchasing the assets of a Mercedes-Benz dealership in Harlingen, Texas. According to Carduco, it was led to believe that MBUSA would allow it to relocate the dealership to the McCallen area based on statements and conduct allegedly occurring before and during negotiations. After MBUSA awarded that area to another dealer, Carduco filed suit.

At trial, the jury returned a verdict in favor of Carduco on its fraudulent inducement claim, and awarded $15.3 million in actual damages and $115 million in punitive damages. The Texas Supreme Court (the “Court”) ultimately reversed the verdict based on the language of a written Dealer Agreement between Carduco and MBUSA. The terms of the Dealer Agreement conflicted with—and in fact flatly contradicted—the alleged understanding Carduco claimed it had regarding its ability to relocate its dealership. This contradiction doomed Carduco’s fraud claim, with the Court holding that Carduco could not have justifiably relied on alleged oral understandings in the face of contradictory provisions in the Dealer Agreement.

The lesson here? Be wary of oral agreements or understandings that are contrary to the terms of a written contract between the parties. They may be of little or no support if a dispute arises concerning the parties’ intentions. This is because, under Texas law, reliance on an oral representation that is directly contradicted by the express, unambiguous terms of a written agreement between the parties is not justified. Without justifiable reliance, there can be no fraud claim.

The Importance of Well-Written Contracts

While an oral contract may seem like an easy solution, businesses can encounter many issues if the language of the agreement is unclear, or if one of the parties forgets or denies what was actually discussed. Having a thorough, well-written contract clearly setting forth the terms of the deal goes a long way toward either avoiding disputes altogether or prevailing should one occur.

It can also be very easy to overlook small details within a contract, so it is incredibly important to ensure that you have carefully reviewed every provision before you sign on the dotted line.

Breach of Contract Attorneys

Contracts are a critical part of every business relationship. A proper contract should clearly define each party’s rights and obligations so that expectations and outcomes are understood and not subject to a valid challenge.

Okin Adams is experienced in drafting and litigating oral, written, and implied agreements, including taking breach of contract cases to trial to defend or vindicate our clients’ rights. If you are in need of assistance, please contact the professionals at Okin Adams to discuss your options.