Beware The Boilerplate: Merger And Integration Clauses

It is fairly common for a defendant sued on a debt to assert, long after the money's been spent, that he was defrauded into entering the transaction. Such "fraud in the inducement" claims are very difficult to have dismissed on summary judgment, because allegations of fraud are generally accepted to raise issues of fact. One of the most fact-intensive elements of a fraudulent inducement claim is whether the defrauded party actually relied on the other party's representations in entering the contract, and whether such reliance was reasonable. A merger clause that negates reliance, may bring the lender one step closer to defeating this argument.

Can a merger clause beat allegations of fraud in the inducement? Maybe.

A merger clause is a contractual provision to the effect that the written terms of the contract may not be varied by prior agreements because all such agreements have been merged into the written document. IKON Office Solutions, Inc. v. Elfert, 125 S.W.3d 113, 125 n.6 (Tex. App.—Houston [14th Dist.] 2003, pet. denied). Most merger clauses look something like this:

All understandings, representations and agreements heretofore had with respect to this Guaranty are merged into this Guaranty which alone fully and completely expresses the agreement of Guarantor and Lender.

Such a clause is insufficient to beat a fraudulent inducement claim. Dallas Farm Mach. Co. v. Reaves, 307 S.W.2d 233, 239 (Tex. 1957). But the Texas Supreme Court has held that under certain circumstances fraudulent inducement can be avoided by a merger clause that expressly indicates an intention to negate reliance and/or preclude fraudulent inducement claims.

In Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 177 (Tex. 1997), the Texas Supreme Court held that the following merger clause, which was contained in a post-dispute release agreement, sufficiently negated reliance so as to preclude a claim that the settlement was induced by fraud:

[E]ach of us expressly warrants and represents and does hereby state . . . and represent . . . that no promise or agreement which is not...