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Fraudulent Inducement and Commercial Contract Litigation in Florida

superyachtIf you find yourself in need of pursuing a civil lawsuit based upon the false statements someone made to persuade you to sign a contract, it is important that you take the proper preparations necessary to build your case. This includes retaining skilled Florida commercial litigation attorneys, who can help you collect your evidence and develop your case. For one plaintiff in a recent commercial contract case, the key to success was establishing that the presence of an “as is” clause in the contract did not bar the later assertion of a fraudulent inducement claim based upon statements made during the negotiation process.

The contract at the center of this case was one for the purchase of a yacht. A North Carolina-based LLC agreed to buy a used 105-foot luxury super-yacht from a seller in Palm Beach County. The contract included a $6.8 million purchase price. The contract also contained an “as is” clause that stated that the buyer took the vessel in as-is condition and that the seller provided no warranties whatsoever. The agreement, however, came with an addendum that inserted an express limited warranty into the deal. That warranty covered “certain manufacturing and design defects for a period of one year from the contract date.”

Unfortunately for the parties, problems emerged shortly after the completion of the sale. The buyer sued, alleging that the seller made “numerous false representations regarding the yacht’s condition” during the course of the negotiation process. First, the buyer alleged that the seller affirmatively stated that the vessel was MCA LY2 compliant. (MCA LY2, which was later superseded by MCA LY3, is a set of safety and pollution prevention standards.) The seller also told the buyer that the yacht was built to DNV standards, but that wasn’t true either, according to the buyer.

The yacht had problems that limited its range, and it also developed electrical issues. The buyer informed the seller, but the seller allegedly refused to take any action, which led to the buyer’s lawsuit.

One of the key elements of the buyer’s case was its claim that these false statements amounted to fraudulent inducement to contract. The seller asked the district court to issue summary judgment on this claim, and the court agreed. The court reasoned that the buyer’s claim focused upon alleged misrepresentations made before the contract was signed, and, since those representations were explicitly contradicted by that later written document’s as-is clause, the buyer was not entitled to rely on the previous representations and had no case for fraudulent inducement.

The 11th Circuit Court of Appeals reversed and sent the case back, allowing the buyer to proceed. The appeals court concluded that Florida law on fraudulent misrepresentation in this type of situation was established clearly by a 1941 Florida Supreme Court case, Oceanic Villas, Inc. v. Godson. That 1941 ruling expressly stated that an as-is clause does not automatically prohibit a plaintiff from bringing a fraud claim. That court announced that “where an agreement is procured by fraud or misrepresentation, then the entire “contract is vitiated because … a party can not contract against liability for his own fraud.”

The only way a party could be barred from bringing a fraud claim in this type of situation would be if the parties had inserted in their contract a provision that expressly states that the agreement is not contestable on the basis of fraud. The parties to this yacht deal had no such provision in their contract, so the buyer was allowed to proceed.

If you find yourself having not gotten the benefit of the bargain you were promised in your commercial contract, it is important to take prompt action to protect your business. The knowledgeable South Florida commercial litigation attorneys at Stok Folk + Kon have been helping businesses in South Florida and around the state take actions needed to defend their rights and advance their businesses’ interests. Find out how our team can help you.

Contact us online or by calling (305) 935-4440 to schedule your consultation and find out how this firm can help you protect your interests.

More blog posts:

Shortcoming of ‘Long-Arm’ Jurisdiction Argument Leaves Consulting Firm Unable to Pursue Defendant’s President in Florida, Florida Business Lawyers Blog, July 18, 2017

‘Choice of Law’ Provision in Commercial Contract Allows LLC to Maintain Fraudulent Inducement Case, Florida Business Lawyers Blog, July 11, 2017