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

Court of Appeals of Michigan
579 N.W.2d 411 (1998)

ELI5:

Rule of Law:

A clear and unambiguous merger clause in a written contract is conclusive evidence that the agreement is fully integrated, rendering parol evidence of prior or contemporaneous oral agreements inadmissible to add to or vary the terms of the contract.

Facts:

In December 1993, UAW-GM Human Resource Center (plaintiff) contracted with Carol Management Corporation (CMC) to hold a convention at the Doral Resort and Country Club.
During negotiations, plaintiff's agent and CMC's agent allegedly made an oral agreement that the hotel's employees would be union-represented, a key requirement for the plaintiff.
The final written 'letter of agreement' did not include any provision requiring union-represented employees.
The written agreement contained a merger clause stating it constituted 'a merger of all proposals, negotiations and representations with reference to the subject matter and provisions.'
Later in December 1993, CMC sold the resort to KSL Recreation Corp. (defendants).
After the purchase, KSL Recreation Corp. replaced the resort’s union employees with a nonunion workforce.
In June 1994, upon learning the hotel staff was no longer unionized, UAW-GM Human Resource Center canceled the contract.
UAW-GM Human Resource Center demanded the return of its down payment, which the defendants refused.

Procedural Posture:

UAW-GM Human Resource Center (plaintiff) sued KSL Recreation Corp. (defendants) in a Michigan trial court, asserting claims for breach of contract, conversion, and fraud.
Defendants filed a counterclaim and moved for summary disposition, seeking to enforce the contract's liquidated damages clause.
Plaintiff filed a cross-motion for summary disposition.
The trial court granted plaintiff's motion for summary disposition on all counts and denied defendants' motion.
Defendants, as appellants, appealed the trial court's order to the Michigan Court of Appeals.

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Issue:

Does a written contract containing a clear and unambiguous merger clause preclude the admission of parol evidence of a prior oral agreement that adds a substantive term to the contract?

Opinions:

Majority - Markman, RJ.

Yes, a written contract with a clear merger clause precludes parol evidence of a prior oral agreement. When parties include an integration clause, it is conclusive, and parol evidence is not admissible to show that the agreement is not integrated. The purpose of a merger clause is to provide stability to written contracts by nullifying any antecedent agreements not included in the final writing. To allow parol evidence to determine the threshold question of integration would render the merger clause meaningless and create little distinction between contracts that have one and those that do not. While there are exceptions for fraud, the fraud must be of a type that would invalidate the merger clause itself, such as being fraudulently induced into believing the oral agreement was included in the writing. Here, the plaintiff's fraud claim relates only to the collateral oral promise, which was explicitly nullified by the merger clause, making reliance on that promise unreasonable. Therefore, the written contract stands as the complete agreement, and the alleged oral term is unenforceable.

Dissenting - Holbrook, Jr., J.

No, even with a merger clause, parol evidence should be admissible for the threshold determination of whether the parties actually assented to the written document as a complete and accurate integration of their agreement. A writing cannot prove its own completeness, and an integration clause is merely evidence of the parties' intent, not a conclusive bar. Professor Corbin's treatise on contracts supports the view that extrinsic evidence is necessary to determine if the writing was assented to as a complete integration, especially when, as here, the oral agreement was a critical predicate for one party entering the contract. The circumstances surrounding the execution of this contract show that the plaintiff did not assent to a completely integrated agreement that omitted the essential term of a union-represented staff. To enforce the merger clause strictly in this context would be a travesty on justice and would ignore the true intentions of the contracting parties.

Analysis:

This decision significantly strengthens the power of merger clauses in Michigan contract law, establishing a bright-line rule that they are conclusive proof of integration. It shifts the risk of incomplete memorialization squarely onto the parties, demanding that they ensure every material term is explicitly included in the final written document. The ruling provides certainty and predictability for contracting parties, especially successors like the defendants, who can rely on the four corners of the instrument. However, it also limits judicial flexibility to consider extrinsic evidence to prevent potential injustice where a crucial, albeit unwritten, understanding formed the basis of the agreement.

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