When Is The Entire Agreement Not Really The Entire Agreement?

Fraud

At the end of every contract you usually find 5-10 sections that deal with a variety of routine legal issues. These are often referred to as boilerplate provisions because they rarely ever change and are found in every document.

One important boilerplate provision is the Integration or Entire Agreement clause. This section states that only the terms of the written document reflect the agreement between the parties. Anything that was said or written outside this document cannot be used to interpret the parties’ intentions. The goal of this provision is admirable. Just imagine if there was a dispute and one party tried to bring in prior oral conversation to prove his case. It would be a matter of “he said she said”, with no right answer. Litigation would be even more endless than it is today.

While an Integration clause is intended to avoid just those conflicts, a recent Michigan Court of Appeals ruling in Johnny’s-Livonia, Inc. vs Laurel Park Retail Properties, LLC, limits its use. In this case, the landlord made representations to a prospective tenant about what space could be leased, how other space in the building would be used, and the number of people that entered the mall annually. These were all used to induce the tenant to enter into the lease. After moving in and finding out the landlord’s statement were false, the tenant sued. The tenant never claimed the statements were contradicted in the lease. Rather, he argued the landlord’s misrepresentations constituted fraud because the tenant entered into the lease based on these misrepresentations. The tenant won. The Court stated that, although discussions made before entering into an agreement cannot be used to interpret ambiguous contract terms, it can be used to claim fraud. The court distinguished between statements that induced someone to enter into the contract versus statements that addressed what somebody might do in the future (and that would really be a claim for breach of contract).
The Truth
Why This Matters – An Entire Agreement clause, does not insulate you from statements your salespeople make in trying to win a contract. Promises about your future actions will still likely be protection by the Entire Agreement provision. However, statements about current issues and current facts that induce somebody to enter into the contract, can still be used to claim fraud.

Now Do This – In your weekly sales meetings (you have those, right) make sure your salespeople understand they cannot misrepresent the current state of your product, service, or property in order to convince someone to buy from them. If you they do, they are opening up your company to a fraud claim.

Related Posts

Leave a Reply