Integration clauses and collateral matters


Integration clauses in contracts for the sale of property are not always a guarantee against later claims of fraud, as shown by the Court of Appeals’ recent opinion in Jenson v. William B. Gallagher Revocable Trust.

The Jensons purchased real estate near Dewey Lake in Silver Creek Township, Michigan. They claimed that, while viewing the property before the sale, it was represented to them that the property included fifty feet of lake frontage and about twenty feet of private beach. The plaintiffs purchased the property based in part on these representations. The purchase agreement included a merger and integration clause, which stated:

It is further understood that no representations or promises have been made to Buyer by real estate brokers or sales persons or by the Seller other than those contained in this agreement or as otherwise made or given by the Seller to the Buyer in the written disclosure statement.

Approximately one year later, a neighbor informed the plaintiffs that they did not actually own any lake frontage, which they confirmed by contacting the township assessor. The assessor then had the property reclassified, which substantially reduced its value. Plaintiffs filed a lawsuit against the defendants, alleging fraud. The defendants moved for summary disposition, arguing that the merger and integration clauses in the purchase agreement would make it impossible for plaintiffs to establish the element of reasonable reliance.

The Court of Appeals disagreed, stating that there is an important difference between whether plaintiffs are attempting to introduce new or different contract terms, or alleging collateral factors that have a legal operation of their own. In this case, the Court found that the plaintiffs were not seeking new or different terms in the contract, such as a guarantee of lake frontage, or a guarantee of future lake access, but instead were taking the position that they were fraudulently induced to enter the contract in the first place because it was falsely represented to them that they were buying lakefront property. Defendants misrepresented what was being sold in order to induce plaintiffs to enter into the agreement in the first place, and in this case, the integration and merger clauses did not preclude a claim of fraud.

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