g The Truth About Toll Brothers

The Truth About Toll Brothers

Friday, June 01, 2007

Let's talk contracts. Can the Integration or Merger Clause bar all claims?

Most attorneys, arbitrators and Courts would answer “yes”. This is an unfortunate consequence because the Integration Clause cannot possibly bar all claims especially when the actions of the Seller are illegal or fraudulent in nature.

Here we will examine the Integration or Merger Clause at length. It appears that nearly all contracts contain them. But, does having one absolve the Seller from any wrongdoing of any magnitude?

Your Integration or Merger Clause may look something like this:

This Agreement and all Exhibits and Endorsements contain the entire agreement between the parties. Buyer acknowledges that no one has the authority to make any and no one has made statements or representations which have been relied upon by Buyer which modify or add to the terms and conditions set forth herein, including any statements relating to the existence, condition, use or development of nearby property, roads or open spaces, except as expressly set forth in an Exhibit or Endorsement hereto. No modification of this Agreement shall be binding unless it is in writing or signed by the parties.

At a first glance, one may think that we initialed a paragraph that clearly states that we did not rely on statements or representations regarding the development of nearby property. But, let’s examine this paragraph closer as the Arbitrator did not afford us the opportunity to present the following arguments on the Integration Clause:

1. We signed a paragraph that specifically states that we did not rely on representations that MODIFIED the terms or conditions set forth. The representation that our lots were private was not a modification or a change. The representation was consistent with all written data that Toll provided. The representation was consistent with the Exhibits and Endorsements INTEGRATED into our contracts.

2. Michigan Law defines the documents that are an integral part of our contracts. Per the Michigan Condominium Act and the City of Novi Ordinances, the Final Site Plan and the Master Deed are wholly INTEGRATED into our contracts.

3. In addition to well-defined and clearly applicable Michigan Law, Toll’s own Agreement of Sale Checklist (Toll’s internal document) denotes that the Final Site Plan is an INTEGRAL part of the Agreement.

4. If the Integration Clause provides that no other documents, outside of the four page Agreement of Sale, are a part of the contract, then the clause would not be a necessary part of the contract, in that there would be nothing for the clause to be INTEGRATING. The clause itself would become unreasonable and unconscionable in that it failed its essential purpose.

5. The Integration Clause does not supersede violations of the Michigan Condominium Act and the Michigan Consumer Protection Act. The Integration Clause is not a “get out of jail free” clause.

6. The Integration Clause cannot possibly bar all claims. The Integration Clause simply prohibits reliance on outside sources of information. In our case, no outside sources were used. Per the Michigan Condominium Act and City of Novi Ordinances, the Master Deed and Final Site Plan are NOT outside sources; they are wholly INTEGRATED into the contract.

Unfortunately, we were not able to make these arguments at our anticipated required hearing as our case was dismissed before the arguments were presented. Therefore, no determination was made on the Integration or Merger clause. If you are an attorney, law student, prospective purchaser or recovering victim, I welcome you to weigh in and post a comment.


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