Contracts II, Pages 771–782

UAW-GM Human Resource Center v. KSL Recreation Corp.

Court of Appeals of Michigan, 1998

Facts:

Plaintiff entered into a contract with CMC to use their resort and country club for a convention the next year. The "letter of agreement" included a merger clause stating that it constituted "a merger of all proposals, negotiations, and representations with reference to the subject matter and provisions." It did not include a requirement that the employees be union-represented, but CMC did orally agree to provide a union hotel prior to and at the time of the writing. The letter of agreement also had a liquidated damages clause if plaintiff canceled for anything other than an emergency making it illegal to host the event.

Later that month, CMC sold the hotel to defendant, who replaced the resort's union employees with non-unionized workers. Six month later, when plaintiff learned of this, it canceled the contract and demanded a refund of its down payment. Defendant refused to return the payment, claiming it was owed to them as a portion of the liquidated damages.

Plaintiff sued for return of the down payment and claims of breach of contract, conversion of the deposit, and fraud. Defendant counterclaimed and moved for summary disposition and enforcement of the liquidated damages clause.

Procedural History:

Trial court granted plaintiff's motion for summary disposition regarded the breach of contract count, based on there being a separate agreement requiring that the hotel employees be union-represented.

Issues:

  • Does an exception from NAG apply to allow parol evidence despite an explicit merger clause?

  • What effects does fraud have on a contract with a merger clause?

Defendant's Argument:

Parol evidence of a separate agreement about union employees was inadmissible because the letter of agreement included an express merger clause.

Rules:

  • LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 775

    [P]arol evidence is not admissible to show that a written agreement is not integrated

  • LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 776, Fraud

    [W]hen a contract contains a valid merger clause, the only fraud that could vitiate the contract is fraud that would invalidate the merger clause itself

Reasoning:

  • Corbin and Williston indicate this, it is consistent with the general contract principles of honoring parties' agreements as written, and holding otherwise would remove the purpose of merger clauses.

    Defendants assumed CMC's obligations, but could not have been expected to know every oral representation CMC made with every party they contracted with.

  • Any injury suffered by plaintiff would be from its failure to include such a clause in the letter of agreement and thus could not invalidate a contract with a valid merger clause. There's no allegations that plaintiff was misled as the content of the letter, and plaintiff's agent was an experienced negotiator.

Holding:

  • NAG's exceptions do not apply when there is an explicit merger clause.

  • As a matter of law, parol evidence was not admissible here to contradict the explicit integration clause.

Judgment:

Reversed and remanded.

Dissenting Opinion:

Holbrook: The parol evidence rule is applied too rigidly. A writing cannot prove its completeness by itself. Oral testimony may show that the letter of agreement was not complete despite plaintiff consenting in writing that it was. The parties' intent should be ascertained even if they wrote that that was not their intention. The trial court's order should be affirmed.


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