“As Is” Defenses to Consumer Fraud Claims Have Been Eliminated by the Illinois Consumer Fraud Act and by the Courts

There are no Illinois cases permitting contractual absolution of fraud via a non-reliance clause in a simple consumer transaction. None. This defense does exist. But it applies only to transactions involving sophisticated business entities or to securities litigation.

Judge Posner addressed this issue extensively in Extra Equipamentos E Exportacao Ltda. v. Case Corp., 541 F.3d 719 (7th Cir. 2008), the case cited, but not really discussed (for a reason!), by many defendants in consumer fraud cases. This persuasive authority from the Seventh Circuit (which attempts to predict how the Illinois Supreme Court would resolve the issue of factual inquiry into the circumstances of a party’s knowledge) warrants extensive citation:

In the trade, no-reliance clauses are called "big boy" clauses (as in “we’re big boys and can look after ourselves”). But if someone who is not a big boy—indeed is not even represented by counsel—signs a big-boy clause, there can be a problem, and this has led some courts to require, before such a clause can be enforced, an inquiry into the circumstances of its negotiation, to make sure that the signatory knew what he was doing. See Brown v. Earthboard Sports USA, Inc., 481 F.3d 901, 920-21 (6th Cir.2007); AES Corp. v. Dow Chemical Co., 325 F.3d 174, 180-81 (3d Cir.2003); see also Rissman v. Rissman, supra, 213 F.3d at 387-89 (concurring opinion). (The D.C. Circuit appears to be on both sides of the question. Compare One-O-One Enterprises, Inc. v. Caruso, 848 F.2d 1283, 1286-87 (D.C.Cir.1988), with Whelan v. Abell, 48 F.3d 1247, 1258 (D.C.Cir.1995).)

Whether Illinois would permit or require such an inquiry we do not know, but will assume an affirmative answer. It would not follow that the enforceability of such a clause could never be decided, as Extra seems to believe, without a trial. When no reasonable jury could find that the signatory did not understand the meaning of the no-reliance clause that he signed, the issue of enforceability can be resolved on summary judgment. FMC Technologies, Inc. v. Edwards, 2007 WL 1725098, at *2-6 (W.D.Wash. June 12, 2007); see Cozzi Iron & Metal, Inc. v. U.S. Office Equipment, Inc., 250 F.3d 570, 574 (7th Cir.2001) (Illinois law); MBIA Ins. Corp. v. Royal Indemnity Co., 426 F.3d 204, 214-19 (3d Cir.2005). And that is the case here. Briante is the president of a very large company, and he was represented at the negotiation of the release by Brazilian and New York lawyers, all experienced in commercial transactions. Extra is a big boy and acted through counsel. It does not argue that its lawyers were unfamiliar with no-reliance clauses or failed to explain all the terms of the release to Briante, or that Case's representatives misrepresented the meaning of the no-reliance clause-that is not among the frauds alleged.

Extra Equipamentos, 541 F.3d at 724-25

Extra Equipamentos provides useful guidance. As a general proposition, it establishes a rule that a factual inquiry is necessary before the clause would be enforced: "It would not follow that the enforceability of such a clause could never be decided, as Extra seems to believe, without a trial." Extra Equipamentos, 541 F.3d at 725. Thus, a defendant would need to prove at trial that, during their purchase of a product, such as car, the plaintiff was represented by a lawyer familiar with nonreliance clauses, that the legal significance of such language was explained to the consumer, and that, generally, the consumer understood the clause’s meaning. Without that, the clause would not apply.

Courts around the country, having struggled with the notion of basic moral repugnancy of permitting fraud based on a contractual disclaimer, developed a number of tests that give these attempts appropriate judicial scrutiny. For example, the Supreme Court of Texas—not exactly a liberal institution—stated that non-reliance clause defense must overcome the following elements: (1) the terms of the contract must be negotiated, rather than boilerplate, and during negotiations the parties had to specifically discuss the issue which has become the topic of the subsequent dispute; (2) the complaining party was represented by counsel; (3) the parties had to deal with each other in an arm's length transaction; (4) the parties were knowledgeable in business matters; and (5) the release language was clear. Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 60 (Tx. S.Ct. 2008). Cf. Slack v. James, 614 S.E.2d 636, 640 (S.C.S.Ct. 2005) ("[a] party should not be given the opportunity to free himself from an allegation of fraud by incorporating a generalized non-reliance clause into a contract."). (Emphasis added.)

Illinois has a long-standing policy of not allowing contractual defenses to absolve fraudsters of fraud and the Illinois consumer fraud act bans use of contractual clauses that result in waiver of its protections. It has long been the law in Illinois that "a party guilty of fraud cannot, by way of estoppel against the party injured, rely upon provisions in a contract" which state that no representations have been made. Ginsburg v. Bartlett, 262 Ill.App. 14, 1931 WL 3036, at *10 (1st Dist. 1931) (parol evidence of fraud is admissible in the face of contract stating no such representation had been made); Schaffner v. 514 W. Grand Place Condominium Assn., 324 Ill.App.3d 1033, 1045 (1st Dist. 2001) ("Where mutual mistake or fraud is alleged, parol evidence is admissible to show the true intent and understanding of the parties.") The courts will not enforce an exculpatory clause waiving claims of fraud. Bauer v. Giannis, 359 Ill.App.3d 897, 908 (2nd Dist. 2005) ("as is" is not a defense to fraud). See also Restatement of Contracts 2d §196 (a term unreasonably exempting a party from the legal consequences of a misrepresentation is unenforceable on grounds of public policy). As another court has stated:

There is nothing in law or in reason which requires one to deal as though dealing with a liar or a scoundrel, or that denies the protection of the law to the trustful who have been victimized by fraud. The principle underlying the caveat emptor rule was more highly regarded in former times than it is today; but it was never any credit to the law to allow one who had defrauded another to defend on the ground that his own word should not have been believed.

Schmidt v. Milhauser, 130 A.2d 572, 576 (Md. App. 1957), Quoting Bishop v. E.A. Strout Realty Agency, 182 F.2d 503 (4th Cir. 1950)

A seller’s bad faith in selling a defective and dangerous product such as a car that is rebuilt wreck would not permit use of a contractual disclaimer under the Uniform Commercial Code (“UCC”) on the grounds of bad faith:

  • Vlases v. Montgomery Ward & Co., 377 F.2d 846, 850 (C.A. Pa. 1967) (case of sick chickens; "Section 1-102(3) [good faith] of the Code's General Provisions states that standards which are manifestly unreasonable may not be disclaimed and prevents the enforcement of unconscionable sales where, as in this instance, the goods exchanged are found to be totally worthless.");

  • Potomac Plaza Terraces, Inc., v. QSC Products, Inc., 868 F.Supp. 346, 351 (D.D.C. 1994) ("Despite the apparent validity of the exclusion clause, summary judgment for the defendant on the implied warranty of merchantability is inappropriate. The law imposes an obligation of good faith in the enforcement or performance of every contract. See D.C.Code Ann. § 28:1–203. See also 1 Ronald A. Anderson, Uniform Commercial Code § 1–203:14, at 382 (3d ed. 1981) ('When a party acts in bad faith, he will ordinarily be denied the benefit of any provision or concept that would improve his position.'). If bad faith is alleged pertaining to a disclaimer of warranty, the disclaimer will not be held binding if it is shown that its inclusion in the contract was a violation of the obligation of good faith. See, e.g., 1 James J. White and Robert S. Summers, Uniform Commercial Code § 12–11, at 611 (3rd ed. 1988) ('[S]ection 2–316 does not state expressly that all disclaimers meeting its requirements are immune from general policing provisions like ... 1–203.'); 3 Anderson, supra § 2–316:36, at 349."));

  • Oloffson v. Coomer, 11 Ill.App.3d 918, 923, 296 N.E.2d 871, 875 (3d Dist. 1973) (where the dealer knew of a usage of trade and failed to disclose this usage of trade to a farmer ("I'm no information sender"), the dealer acted in bad faith and his damages would be limited to those anticipated by the undisclosed usage of trade);

  • Libertyville Toyota v. U.S. Bank, 371 Ill.App.3d 1009, 1016, n.3, 864 N.E.2d 850, 856, n.3, 309 Ill.Dec. 609, 615, n.3 (1st Dist. 2007) ("The standard of good faith to which a merchant is held is higher than that of a non-merchant.").

If you are a victim of a consumer fraud or believe you have a claim under the Illinois Consumer Fraud and Deceptive Businesses Practices Act, including a claim for auto-fraud, vitamin supplement fraud, medical or healthcare product fraud, or food labeling fraud, contact one of Chicago’s best consumer fraud lawyers as recognized by Super Lawyers. If you are a business that faces a claim brought by the Illinois Attorney General for alleged consumer fraud or by a disgruntled customer and are seeking aggressive and knowledgeable Chicago consumer fraud defense lawyers, contact us. With offices in Chicago, Elmhurst and Wilmette, Illinois, we have litigated class action and individual consumer fraud suits throughout the Chicago area and across the country having litigated some landmark consumer fraud class actions. We have also successfully defended mid-sized businesses and large national corporations and banks in bet the company class actions. To set up a free consultation with one of our skilled Chicago consumer rights attorneys or Chicago consumer fraud defense attorneys, you can contact us online or call us on our toll-free number at 630-333-0333.

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