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Illinois Courts Expand the Enforceability of "No Reliance" Clauses, Opening Door For their Application in Franchise Litigation
By Daniel Garner on January 11, 2013 at 6:27 PM

Franchisors often include a “no reliance” clause in their franchise agreements, in which the franchisees acknowledge that they have not relied on any information or representation not expressly stated within the franchise agreement itself. The intent of such clauses is to help protect against a claim based on alleged oral or written representations made outside of the franchise agreement. Although several federal courts have found that such “no reliance” clauses preclude franchisees from proving fraudulent misrepresentation cases, many state courts have been hesitant to bar fraud claims based on such clauses.

Illinois cases routinely enforced such clauses in securities cases, and recently, an Illinois Appeals Court, held that a “no reliance” clause can bar a plaintiff from establishing a fraud claim in any case. Schrager v. Bailey, 973 N.E.2d 932, 937 (Ill. App. Ct. 2012)] The Schrager court stated that “it is hardly justifiable for someone to rely on something that they have agreed not to rely on.” Instead, the court stated that “[r]educing the possibility of faulty memories and fabrication are important considerations in the drafting of any contract and is not limited to contracts involving securities transactions.” (emphasis supplied).

Although no published Illinois court decision has yet expanded Schrager’s holding to the franchise context, the move is likely imminent. Thus, franchisors in Illinois may be able to defend against fraudulent misrepresentation claims by pointing to the “no reliance” clause in their franchise agreement.

Based on these developments, Illinois franchisors should have counsel review their current franchise agreements to determine if they should be revised in light of this recent ruling. Of course, franchisors should still avoid making any oral promises and/or representation that differ from the terms of the franchise agreement and keep in mind that court decisions are often fact-specific and no one can predict how a court or jury will rule. Most importantly, fair business practices should always govern and franchisors should train their personnel not to make promises that are not included in the written franchise agreement.

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