No reliance: Overview, definition, and example
What is no reliance?
No reliance is a provision in a contract where the parties agree that they have not relied on any representations, warranties, or statements outside the terms of the written agreement. In other words, the parties are affirming that they have based their decision to enter into the contract solely on the terms stated in the contract itself, and not on any oral statements, promises, or informal communications made prior to or during the negotiation of the agreement.
The no reliance clause helps protect the parties from future claims that they were misled or deceived by prior discussions or representations not included in the final written agreement. This provision aims to ensure that the contract reflects the entire understanding between the parties and that any external statements or promises are excluded from consideration.
Why is no reliance important?
The no reliance clause is important because it helps reduce the risk of misunderstandings or disputes based on oral or informal statements made during negotiations. It clarifies that only the written terms of the agreement will govern the relationship and prevents a party from later claiming that they were misled by statements or promises that were not formally included in the contract.
For businesses, having a no reliance clause ensures that any representations made before or during negotiations that are not included in the contract cannot be used as grounds for a legal claim. This clause provides legal certainty and ensures that the terms of the contract accurately reflect the intentions of the parties without external influences.
Understanding no reliance through an example
Imagine a company enters into a contract to purchase equipment from a supplier. During the negotiations, the supplier verbally assures the company that the equipment will last for 10 years. However, the final written contract does not include any reference to this promise. If the equipment fails after a few years, the no reliance clause would prevent the company from claiming that they relied on the verbal statement about the equipment’s lifespan. Instead, the company is bound by the terms explicitly stated in the written contract.
In another example, a service provider agrees to provide IT services to a client. Prior to signing the agreement, the client is told informally by the service provider that they will receive a discount on future services. The contract, however, does not include any provision regarding future discounts. The no reliance clause would ensure that the client cannot later claim that the service provider is obligated to honor the verbal promise of a discount.
An example of a no reliance clause
Here’s how a no reliance clause might look in a contract:
“Each Party acknowledges and agrees that it has not relied on any representations, warranties, or statements made by the other Party or any third parties, except for those expressly set forth in this Agreement. This Agreement constitutes the entire understanding between the Parties, and supersedes any prior oral or written communications.”
Conclusion
The no reliance clause is a key element in contract law, helping to ensure that only the terms written in the agreement govern the relationship between the parties. By excluding any external representations or promises not explicitly included in the contract, this provision reduces the risk of future legal disputes and ensures that both parties are clear about their obligations and rights. For businesses, this clause provides greater legal certainty and protects against claims based on prior informal statements or negotiations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.