What does a merger clause do to prior discussions under Alabama law?
It raises a presumption, and the presumption can be rebutted. As a general rule (the words are quoted in the opinion from Sherman v. Woerner Magnolia Farms, Inc. (Ala. 1990)) when parties reduce a contract to writing and intend that writing to be the complete contract, no extrinsic evidence of prior or contemporaneous agreements will be admissible to change, alter, or contradict the contractual writing. Taking from an Eleventh Circuit decision the proposition that a merger clause makes an agreement "integrated", the court then held that merger clauses create a presumption that the writing represents an integrated, that is, the final and complete, agreement of the parties (Ex parte Palm Harbor Homes, Inc.). The same opinion states, quoting a federal decision, that in order to rebut the presumption and in effect invalidate the merger clause a party must offer evidence to establish the existence of fraud, bad faith, unconscionability, negligent omission or mistake in fact, and that whether a contract is integrated is ordinarily a question of law for the court to decide. For a sale of goods, terms in a record intended as a final expression may not be contradicted by evidence of a prior agreement or of a contemporaneous oral agreement, but may be explained or supplemented by course of performance, course of dealing or usage of trade, and by consistent additional terms unless the court finds the record was intended as a complete and exclusive statement (Ala. Code § 7-2-202).
The trap
The list of things that rebut the presumption is what a drafter should read twice: fraud, bad faith, unconscionability, negligent omission or mistake in fact, a list the court took from a federal district court decision, Smith v. Central Soya of Athens, Inc. (E.D.N.C. 1985). Read it with the Alabama authority the court cited alongside it, which points the other way: once fraud in the inducement has been ruled out, all prior statements and negotiations are merged into the written contract. In Palm Harbor itself the clause held, because the parties attacking it never contended the contract was the result of any of those five things, and that half of the mandamus petition was denied. And under § 7-2-202 a merger clause that does not make the record a complete and exclusive statement still leaves the door open to consistent additional terms, and never closes the door on course of dealing, course of performance or usage of trade.
7 authorities
The words that state the rule
As a general rule, "when parties reduce a contract to writing and intend that writing to be the complete contract, no extrinsic evidence of prior or contemporaneous agreements will be admissible to change, alter, or contradict the contractual writing." Sherman v. Woerner Magnolia Farms, Inc., 565 So.2d 601, 605 (Ala.1990).
The words that state the rule
When a contract contains ... a merger clause, the agreement is deemed to be `integrated,' such that evidence of prior or contemporaneous agreements shall not be admitted to contradict the terms of the agreement." Johnson Enters. of Jacksonville, Inc. v. FPL Group, Inc., 162 F.3d 1290, 1309 (11th Cir.1998). Merger clauses thus create a presumption that the writing represents an integrated, that is, the final and complete, agreement of the parties. See Tallmadge Bros., Inc. v. Iroquois Gas Transmission Sys., L.P., 252 Conn. 479, 504 , 746 A.2d 1277 , 1291 n. 15 (2000).
The words that state the rule
In order to rebut the presumption and, in effect, invalidate the merger clause, a party must offer evidence to establish the existence of fraud, bad faith, unconscionability, negligent omission or mistake in fact." Smith v. Central Soya of Athens, Inc., 604 F.Supp. 518, 526 (E.D.N.C.1985). See also Lake Martin/Alabama Power Licensee Ass'n, Inc. v. Alabama Power Co., 601 So.2d 942, 945 (Ala.1992) ("When fraud in the inducement has been ruled out, ... all prior statements and negotiations are merged into the written contract and ... in the absence *661 of an ambiguity ..., parol evidence will not be received to explain, contradict, vary, add to, or subtract from the express terms of the written contract.").
The words that state the rule
Whether a contract is integrated is ordinarily a question of law for the court to decide.
The words that state the rule
Significantly, Palm Harbor and Southern Lifestyle have not attempted to showor contendedthat the Installment Contract was the result of "fraud, bad faith, unconscionability, negligent omission or mistake in fact," Smith, 604 F.Supp. at 526 , or overreaching or duress on the part of the Knapps.
The words that state the rule
In short, the trial court was not permitted to consider the arbitration provisions in the free-standing instruments. Thus, Palm Harbor and Southern Lifestyle have failed to demonstrate that the trial court erred in holding that "arbitration is to be held in accordance with the Retail Installment contract and security agreement," and, consequently, that they have a clear, legal right to relief from that holding. Indeed, Palm Harbor and Southern Lifestyle only mention the merger issue in passing and cite no relevant authority. Under the posture of this case, therefore, insofar as the trial court ordered arbitration "to be held in accordance with the Retail Installment contract and security agreement," the petition is denied. II. The Alabama Arbitration Act The second objection of Palm Harbor and Southern Lifestyle to the trial court's order stands on better ground. It held the Alabama Arbitration Act, Ala. Code 1975, § 6-6-1 et seq., to be applicable. In this respect, it erred. The Installment Contract provided: "THIS AGREEMENT IS MADE PURSUANT TO A TRANSACTION IN INTERSTATE COMMERCE AND SHALL BE GOVERNED BY THE FEDERAL ARBITRATION ACT AT 9 U.S.C. SECTION 1." (Capital letters in original.) The parties' agreement to be governed by the Federal Arbitration Act is express and clear. Indeed, the Knapps concede that there is no legal basis for the application of the Alabama Arbitration Act. Palm Harbor and Southern Lifestyle have thus shown a clear, legal right to relief from that portion of the order. As to that portion of the order, therefore, the petition is granted. PETITION GRANTED IN PART AND DENIED IN PART; AND WRIT ISSUED.
- statuteAla. Code § 7-2-202enactment date not established
The words that state the rule
Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a record intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented: (a) by course of performance, course of dealing, or usage of trade (Section 7-1-303); and (b) by evidence of consistent additional terms unless the court finds the record to have been intended also as a complete and exclusive statement of the terms of the agreement.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.