Corporate Law / 2 min read
Texas courts have struggled for decades to find the right balance between enforcing contracts and protecting the parties from fraud. At one point, Texas cases consistently held that “fraud vitiates a contract,” meaning that any party who justifiably relied on a material misrepresentation to his detriment can rescind the contract or recover damages.
The Texas Supreme Court started to chip away at some of that anti-fraud language in a series of cases, recognizing that sometimes, the contract language may protect even against actual fraud. For example, a contract may include language that neither party relied on the other party and performed their own investigation. Similarly, the contract may provide that there were no material representations made other than as expressly set forth in the agreement. Both of these provisions may preclude recovery based on false statements that were made during negotiations. Although these provisions are usually considered “boilerplate” and can be afterthoughts, they serve as some of the best defenses against suits challenging the information in the parties’ negotiations.
Another defense to a fraud claim is based on the well-established principle that, in order to recover for fraud, the party’s reliance must be justifiable. When an oral representation is directly contradicted by the express terms of the contract, the party making the representation can argue that reliance on the statement is not justified.
The Texas Supreme Court recently issued an opinion on exactly this issue, and the opinion may be its furthest point yet in protecting a contracting party from claims of fraud. In Roxo Energy Company v. Baxsto, --- S.W.3d ---, 2025 WL 1349581 (Tex. May 9, 2025) (per curiam), a mineral interest owner, Baxsto, sued its lessee, contending that the lessee lied about its intent to drill on the lease and promised it would not “flip” the mineral interests. However, the standard mineral lease entered by the parties did not contain any such representations. The lease did not require Roxo to drill and allowed it to assign its interests.
Even assuming that Roxo had made representations that contradicted the agreement, the court found that “[h]aving signed an [inconsistent] agreement, Baxsto cannot now hold Roxo to whatever version of the deal the parties may have previously discussed orally.” The Court had some unusually specific advice for contracting parties in this state:
When a party…proffers written contract language that makes no mention of matters the parties have previously discussed, this alone should make it obvious to a reasonably sophisticated party…that the previous discussions may no longer be part of the deal. The prudent response is to demand that the parties’ discussion be reflected in the writing—not to sign an agreement that makes no mention of the promises and then try to hold your counterparty to them anyway.
This case arguably stands for the proposition that a party cannot rely on any representations unless they are specifically in the agreement. If that’s true, then Roxo Energy is the current high-water mark for protecting parties from liability for fraud.