Property Law Developments—Joseph William Singer

The states disagree about whether parties to real estate transactions can sue each other for fraud when the contract of sale contains a “non-reliance clause” stating that neither party is relying on any representations made by the other party that are not included in the written contract. Some states allow such claims on the ground that “fraud vitiates consent” and such clauses do not amount to agreements to be defrauded. But other states hold that such clauses immunize the contracting parties from claims of fraud based on oral statements made prior to the deal. The Texas Supreme Court has waffled on this issue, first holding that contracts can be avoided on the ground of fraudulent inducement, Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990), and then ruling that the sophisticated parties are free to bargain around this rule by non-reliance clauses, Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171 (Tex. 1997). See also Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008). However, the court clarified in Italian Cowboy Partners, Ltd. v. Prudential Ins. Co., 2011 Tex. LEXIS 291 (Tex. 2010), that  a non-reliance clause in a real estate contract will not immunize a real estate seller from liability for fraud if it contains a “standard merger clause” which recites that no representations were made other than those in the contract. Only if the clause states that the buyer is not relying on oral statements made by the seller would the buyer be foreclosed from suing for damages for fraud or to rescind the agreement because of fraud. Another way to waive the right to sue for fraud is to do so directly by a clear statement waiving the right to sue for fraudulent inducement.

In this case, the court allowed tenants to rescind a restaurant lease and recover damages when the landlord lied about the condition of the premises which were afflicted with persistent sewer gas odor.

The Supreme Court ruled in Sossamon v. Texas, 2011 U.S. LEXIS 3187 (U.S. 2011), that Congress did not waive the sovereign immunity of the United States when it passed the Religious Land Use and Institutionalized Persons Act (RLUIPA). This means that the only relief available against federal officials for violating the statutorily protected religious freedom rights of federal prisoners is prospective injunctive relief; no damages can be awarded for federal violations of the act. A similar result would apply to land owners whose land use rights are violated by federal officials. The case, however, was not against federal office but state prison officials in a state that accepted federal money to fund its prisons. The precise holding in the case was that prisoners cannot sue such states for damages when those states deprive inmates in state prisons of religious free exercise rights. A similar result could be expected for claims for damages against states and municipalities; such relief appears now to be foreclosed. Of course, states are free to waive their sovereign immunity by clear legislation if they wish to do so.