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Business Litigation Alert: "Texas Supreme Court Again Reminds Businesses - Written Contracts Matter Above All"

In what can only be called a cautionary tale, the Texas Supreme Court ruled last week against a Mercedes Benz franchisee, taking away a $130 million jury award and judgment.  In a unanimous decision, the Court ruled that the award was based on alleged oral representations that were both not included in the parties’ written contract and were contradicted by other contractual provisions.

Background

The case involves franchisee Carduco, Inc. (Carduco) who entered into an agreement with Mercedes Benz to purchase a dealership in Harlingen, TX.  Carduco claims that it had an oral agreement with Mercedes Benz to relocate that dealership to McAllen, TX; however, that was not part of their written agreement.  In fact, the written contract seemed to state the exact opposite.

At trial, the jury returned a verdict in favor of Carduco’s fraud claim and awarded damages of $15.3 million and punitives of $115 million.  The trial court entered judgment on the verdict and the court of appeals affirmed although suggesting that the punitive damages award be significantly reduced.

Texas Supreme Court Opinion

Last week, the Texas Supreme Court exhibited little trouble in reversing the verdict and judgment and deciding, instead, that Carduco “take nothing” on its claims.  The Texas Supreme Court ruled that a party cannot justifiably rely on a representation that “the written contract directly and unambiguously contradicts.”

The Court’s decision in this matter follows a similar ruling it made in 2018 (here) and strongly underscores the significance given by the Texas Supreme Court of getting terms and provisions in writing when negotiating a contract. 

Lessons for Texas Businesses

  1. Get everything in writing. The most important issue this case highlights is the extreme importance of written agreements.  Insist on a written contract signed by all parties that contains all of the terms and provisions and – importantly –  does not contradict other terms. 
  2. Do not sign anything that contradicts an oral agreement. Make sure any terms you have discussed are included in your written agreement and are outlined exactly as you agreed to them.  
  3. Read everything thoroughly and fully understand what you are signing.  It is very easy to overlook small details in a contract, but, as this case illustrates, it is important to make sure that you have reviewed every detail before you sign on the dotted line.

The importance of carefully written and complete written agreements cannot be overstated.  It is human nature to take someone’s word as good enough, but unfortunately, those kinds of verbal agreements often aren’t going to be good enough for the court.

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