The Michigan Cou
rt of Appeals in Johnny’s – Livonia, Inc. v. Laurel Park Retail Properties, LLC (Case # 12-012704-CZ, decided May 19, 2015) recently held that a party to a contract could introduce evidence of statements made during the creation of the contract to prove its fraud claim, despite the existence of an integration clause in the contract.
An integration clause is used in contracts to prevent extrinsic evidence from coming in to vary the express terms of the contract. For example, if a farmer entered a contract to sell 4 bushels of apples and the contract contained an integration clause, the farmer could not introduce evidence to show that the parties had agreed at an earlier date to limit the number of apples in the case of a drought. Drought or no drought, the farmer would be required to deliver 4 bushels of apples.
However, where a party to the contract seeks to introduce extrinsic evidence to show fraud, the integration clause will not prevent them from introducing that evidence.
In Johnny’s, the plaintiff leased a space in a mall to sell yogurt. The plaintiff alleged that it was fraudulently induced into leasing the space based on statements by the defendant lessor prior to the signing of the contract. Plaintiff alleged that the defendant fraudulently represented that millions of people came to the mall annually and that another location in the mall was not leased to other food vendors.
The trial court found that the plaintiff could not introduce these statements since the contract contained an integration clause. However, the Michigan Court of Appeals reversed the decision of the trial court, stating that the integration clause did not prevent the plaintiff from introducing these statements to support its fraud claim. The Court of Appeals reasoned that the statements were not being introduced to vary the terms of the existing agreement, but to show that the plaintiff had been fraudulently induced into signing the contract.
