Chapter 32 GENERAL AND SPECIFIC MERGERS CLAUSES

• Jurisdiction: New York

Chapter Thirty-Two

General and Specific Mergers Clauses

I. General and Specific Mergers—fraud

It is almost impossible to state in detail the circumstances constituting a fraud where those circumstances are peculiarly within the knowledge of the party against whom the defense is being asserted. ⁵⁵⁶¹ Over a century ago, the Court of Appeals, in Bridger v. Goldsmith,⁵⁵⁶² eloquently emphasized the assault against public policy if a party guilty of fraud were permitted to contractually insulate his wrongdoing from redress:

"[T]hat there is no authority that we are required to follow in support of the proposition that a party who has perpetrated a fraud upon his neighbor may nevertheless contract with him, in the very instrument by means of which it was perpetrated, for immunity against its consequences, close his mouth from complaining of it, and bind him never to seek redress. Public policy and morality are both ignored if such an agreement can be given effect in a court of justice. The maxim that fraud vitiates every transaction would no longer be the rule, but the exception. It could be applied then only in such case as the guilty party neglected to protect himself from his fraud by means of such a stipulation. Such a principle would in a short time break down every barrier which the law has erected against fraudulent dealing."

In Sabo v. Delman,⁵⁵⁶³ the Court of Appeals stated:

In other words, "the law does not temporize with trickery or duplicity. A contract, the making of which was induced by deceitful methods or crafty device, is nothing more than a scrap of paper, and it makes no difference whether the fraud goes to the factum or whether it is preliminary to the execution of the agreement itself." . . . "A rogue cannot protect himself from liability for his fraud by inserting a printed clause in his contract. This principle disposes of the blanket clause providing that no representation shall be binding unless incorporated in the agreement." ⁵⁵⁶⁴

The provision . . . that no verbal undertakings or conditions not contained in the writing were to be binding on either party—sometimes termed a merger clause, merely furnishes another reason for applying the parol evidence rule . . . , and, just as that rule is ineffectual to exclude evidence of fraudulent representations, so this provision may not be invoked to keep out such proof. Indeed, if it were otherwise, a defendant would have it in his power to perpetrate a fraud with immunity, depriving the victim of all redress, if he simply has the foresight to include a merger clause in the agreement. Such, of course, is not the law.

Merger clauses are not mere boilerplate. They provide further protection for the interests of certainty and finality.⁵⁵⁶⁵

A general merger clause in a contract is ineffective to bar a claim of fraud in the inducement of a contract.⁵⁵⁶⁶ Even if a party had been represented by counsel when entering into an agreement, this alone does not, as a matter of law, defeat a cause of action for fraudulent inducement.⁵⁵⁶⁷ Where the complaint states a cause of action for fraud, the parol evidence rule is not a bar to showing the fraud either in the inducement or in the execution, despite an omnibus statement that the written instrument embodies the whole agreement, or that no representations have been made.⁵⁵⁶⁸ It remains the burden during the case-in-chief of the party challenging the agreement to establish that the execution of the prenuptial agreement was procured through fraud, duress, or other inequitable conduct.⁵⁵⁶⁹ The fundamental precept is that the challenger must also establish that the asserted reliance was justifiable under all the circumstances before a complaint can be found to state a cause of action in fraud.⁵⁵⁷⁰

II. General Merger Clauses and Parol Evidence

An integrated contract is one or more writings constituting a final expression of one or more terms of an agreement;⁵⁵⁷¹ a merger clause simply makes express what is implicit in an integrated written contract, i.e., that the writing constitutes the parties' entire agreement.⁵⁵⁷²

Without a merger clause, the court must determine whether or not there is an integration by reading the writing in the light of surrounding circumstances, and by determining whether or not the agreement was one which the parties would ordinarily be expected to embody in the writing.⁵⁵⁷³ In the absence of a merger clause, the surrounding circumstances may be examined to see if the contract was an integrated one, which would allow extrinsic evidence to supply the terms that the parties intended to incorporate into their agreement.⁵⁵⁷⁴

Courts and commentators addressing the substantive and procedural aspects of New York commercial litigation agree that the purpose of a general merger provision, typically containing the language that the agreement 'represents the entire understanding between the parties,' is to require full application of the parol evidence rule in order to bar the introduction of extrinsic evidence to vary or contradict the terms of the writing.⁵⁵⁷⁵ The merger clause accomplishes this purpose by evincing the parties' intent that the agreement is to be considered a completely integrated writing;⁵⁵⁷⁶ accordingly, the parol evidence rule operates to exclude evidence of all prior or contemporaneous negotiations between the parties offered to contradict or modify the terms of their writing.⁵⁵⁷⁷ The Court of Appeals underscored that, "'although at times this rule may seem to be unjust, 'on the whole it works for good' by allowing a party to a written contract to protect himself from 'perjury, infirmity of memory or the death of witnesses.'"⁵⁵⁷⁸

A contractual promise made with the undisclosed intention not to perform it constitutes fraud, and despite the so-called merger clause, the plaintiff is free to prove that he was induced by false and fraudulent misrepresentations to execute the agreements.⁵⁵⁷⁹ Notwithstanding an omnibus statement that the written instrument embodies the whole agreement, known as a general merger clause, or that no representations have been made, the parol evidence rule has no application in a suit brought to rescind a contract on the ground of fraud either in the inducement or in the execution;⁵⁵⁸⁰ in such a case, it is clear that evidence of the assertedly fraudulent oral misrepresentation may be introduced to avoid the agreement.⁵⁵⁸¹

"This agreement contains the entire agreement [with no verbal undertakings or conditions not contained in the writing ⁵⁵⁸²] of the parties hereto with respect to the subject matter herein contained and there are no representations or warranties, except as set forth herein." Such a clause [and thus binding upon both parties ⁵⁵⁸³], is . . . ineffectual to preclude oral proof of false or fraudulent misrepresentations offered to rescind the agreement. ⁵⁵⁸⁴

The rule that fraud in the inducement vitiates a contract, to be subject to exception, is where the person claiming to have been defrauded has by his own specific disclaimer of reliance upon oral representations himself been "guilty of deliberately misrepresenting [his] true intention."⁵⁵⁸⁵

In Thompson v. Thompson,⁵⁵⁸⁶ the Fourth Department declined to set aside a separation agreement finding that proof of the wife's oral promise to support the husband was "barred by the express terms of the agreement, including its provisions with respect to 'Modification and Waiver.'" The Court found that "in light of those provisions and the agreement's merger clauses" proof of the wife's alleged promise was barred by the parol evidence rule.

III. The Transparent Contention of Fraudulent Inducement: "he Promised to Rip Up the Agreement If We Were Married More Than 10 Years" or Upon the Occurrence of Some Other Event; Sunset Clauses

A. Cioffi-Petrakis v. Petrakis

The fundamental precept of the prenuptial agreement is the shielding of assets, past, present, and future, of propertied spouses, without which agreement they would not have married.⁵⁵⁸⁷ As a prefatory note, Cioffi-Petrakis v. Petrakis⁵⁵⁸⁸ stirred the matrimonial bench and bar creating turmoil over the question "Is it now impossible to draft a binding air tight 'general merger/disclaimer/entire understanding clause' in marital agreements?" The lower court decision, while officially unpublished, was, however, printed in the New York Law Journal.

While Petrakis devolved about the merger clause, the appellate decision did not devote even one sentence to the merger clause or the rule of general merger. This writer reviewed key portions of the trial transcripts and remains at a complete loss to understand, inter alia, how and why the trial court's decision, and thereafter the Appellate Division's decision, glossed over glaring contradictions between the testimony of the wife and that of her own lawyer, contradictions that demanded a different outcome. Had the trial court's decision not appeared in the Law Journal, the case would have been consigned to the dustbin of judicial literature.

The wife commenced a plenary action to set aside a prenuptial agreement. The trial was focused on the exclusive ground of fraudulent inducement; the wife claimed that, prior to executing the agreement, the husband promised that he would "rip up" the agreement when their first child was born and that after the marriage all properties he purchased would be titled in joint names and that she relied on these promises when she executed the agreement.⁵⁵⁸⁹

Prior to the marriage, Mr. Petrakis told the wife that he would not marry without a prenuptial agreement. Several months before the wedding, the husband reminded her that a prenup was a predicate to the marriage. Soon thereafter the husband met with counsel, Kroll, who prepared the first draft of the prenup. Kroll advised the husband that the wife needed independent counsel and offered the names of three attorneys. Kroll's instruction were that the wife could use any of the names or anyone else she...