Fraud Carve-Outs in Private M&A Agreements

by Practical Law Corporate & Securities

A Practice Note describing fraud carve-outs in private mergers and acquisitions (M&A) agreements governed by Delaware law. This Practice Note explains the critical distinction between express fraud carve-outs drafted into an agreement and public policy exceptions that Delaware courts may recognize even in the absence of an explicit clause. It examines how these carve-outs affect key contractual limitations, including exclusive remedies provisions, indemnification obligations, non-recourse provisions, and disclaimers of reliance. This Note discusses how seminal case law establishes the boundaries for precluding fraud claims and addresses the significant risks of using undefined fraud carve-outs. Furthermore, this Practice Note explores essential issues to consider when defining fraud and drafting these provisions to align with the parties' negotiated risk allocation.