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Travelodge Hotels, Inc. v. Honeysuckle Enterprises, Inc.

357 F.Supp.2d 788 (D. N.J. 2005)

CONTRACTS; INTEGRATION CLAUSE—It is well-settled that a party to an agreement cannot, simply by means of a provision in a written instrument, create an absolute defense or prevent introduction of parol evidence in an action based on fraud in the inducement to contract.

A franchisor sought payments from one of its former franchisees and from that franchisee’s principal and guarantor. The franchisee and its related parties sought to avoid liability under the franchise agreement by claiming that the franchisor induced the principal “into entering the agreement by fraud and misrepresentation.” The franchisee’s specific claim was that prior to execution of the franchise or license agreement, a salesman for the franchisor made many promises about the number of hotel reservations that the franchisor’s system would provide to the franchisee’s hotel. The agreement itself contained a number of “special acknowledgments” and disclaimers including that the franchisee had received the franchisor’s Uniform Franchise Offering Circular before it signed the agreement or paid its fee. The agreement and the Offering Circular expressly required the franchisee to disclaim that it had “relied on any oral or written communications from [the franchisor] that [were] not contained in writing in the License Agreement.” These and similar provisions were repeated many times within the agreements and within the Offering Circular.

Four months after the franchisee’s access to the franchisor’s central reservation system began, the franchisor notified the franchisee’s principal that the hotel had not filed any annual reports and it owed a substantial amount of unpaid fees. Subsequently, the franchisor restricted the hotel from the reservation system. It gave the franchisee until a given date to make payments. Four months after the initial demand letter, the franchisee’s principal wrote to the franchisee saying that he “had given numerous notices to you through the various departments and offices of your company that [the franchisor] has not, nor ever has, honored the agreement between” the franchisee and the franchisor. He claimed that the hotel had never been connected to the reservation system and said that because the franchisor “had defaulted on the License, he had terminated the contract ‘from a lack of response’ from [the franchisor].” The franchisee’s allegation, simply put, was that the franchisor had never performed under the various agreements.

After reviewing the law, the Court “conclude[d] that the parol evidence rule does not bar evidence of prior oral communications between the parties, notwithstanding the integration clause and disclaimer of reliance in the License Agreement.” It pointed out that, in New Jersey, “[i]t is well-settled that a party to an agreement cannot, simply by means of a provision in a written instrument, create a absolute defense or prevent the introduction of parol evidence in an action based on fraud in the inducement to contract ... . [W]hile the parol evidence rule operates to prohibit the introduction of oral promises to alter a vary and integrated written instrument, proof of fraud in the inducement is not considered as either additional or substitutionary but rather as indicating that the instrument is, by reason of the fraud, void or voidable.” It went on to say that “the parol evidence rule exception for claims of fraud is not without limits. New Jersey courts distinguish between ‘fraud regarding matters expressly addressed in the integrated writing and fraud regarding matters wholly extraneous to the writing.’” Based on its analysis of the testimony and material submitted to the Court, it “conclude[d] that the exception to the parol evidence rule for fraud claims appli[ed] in [this] case. ... Because the disclaimers of reliance in the License Agreement [were] not sufficiently specific to warrant limiting the exception here, evidence of such communications should be considered by” the Court.

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