Relying on Extra-Contractual Oral Representations
In February 2016, the Supreme Court of Alabama decided the matter of Farmers Insurance Exchange v. Morris [Ms. 1121091], — So.3d —, 2016 WL 661671 (Ala. 2016), which stands for two things: (1) oral representations (and particularly oral assertions that differ from contractual or extra-contractual representations) are not, as a matter of law, made a part of the contract merely because the contract contains a merger/integration clause; and (2) a person has not unreasonably relied upon oral representations, when extra-contractual documents contain assertions contrary to the oral representations, as only the written contact to which the parties have agreed can be relied upon.
Morris claimed that Farmers fraudulently induced him to leave his existing employment arrangement and work for Farmers; namely, he left his father’s insurance company to light out on his own with Farmers, then Farmers sacked him, citing in the termination papers that it was because of the conflict with his father’s independent agency. Farmers argued that Morris could not have reasonably relied on oral representations made to him that sharing an office with his father did not create a conflict, due to a merger clause contained in the contract and extra-contractual training materials that were provided to him that should have put Morris on notice of the conflict.
The Alabama Supreme Court held that regardless of the contract containing a horizontal-marketing agreement that included a “merger” or “integration” clause, the Court has never held that an integration clause “renders a party’s reliance on oral representations unjustifiable, or unreasonable, as a matter of law;” moreover, even where a written contract stipulates that any and all oral understandings are not incorporated into the contract, “such a stipulation does not foreclose a party, as a matter of law, from establishing his reliance on fraudulent representations that induced him to enter the contract.” Additionally, whereas when a written agreement between the parties addresses and negates any alleged misrepresentation and further reliance on a contrary oral assertion may be deemed unreasonable, representations contained in a non-contractual document (such as a training manual) that contained representations contrary to the oral assertions, could not be reasonably relied upon by a party, because only the written contract could be relied upon.