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Judges: Integration clause doesn’t preclude introduction of parol evidence

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The 7th Circuit Court of Appeals held Tuesday that in the absence of a factual inquiry, the mere presence of an integration clause doesn’t preclude a party from introducing parol evidence that it was fraudulently induced to enter into the agreement as a whole. The decision came in a dispute involving a settlement agreement that one party sought to invalidate based on claims of fraudulent inducement.

Judson Atkinson Candies Inc. and Kenray Associates Inc. settled two lawsuits through an agreement that required Kenray to pursue its insurer for coverage of Atkinson’s claims that Kenray failed to satisfy certain technology agreements and representations. But after Kenray’s insurer Hoosier Insurance Co. won judgments that it did not have to provide coverage for Atkinson’s claims, Atkinson alleged that it had been fraudulently induced to enter into the agreement by relying on oral representations made by Kenray that its insurer would cover the claims when in fact it already knew it would not.

As part of the settlement, the parties entered into a covenant not to execute, which contained language the District Court concluded was an integration clause: “The parties agree this agreement represents the parties’ sole agreement.”

Magistrate Judge William G. Hussmann Jr. held that because the covenant contained an unambiguous integration clause, parol evidence could not be considered to vary the terms of the agreement. But if Atkinson could show there was fraud in the inducement specific to the integration clause, then it may still be able to circumvent the parol evidence rule and prevail on its claim.  

“The question before us then lies at the intersection of … two legal principles. To wit, where a party to a contract alleges fraudulent inducement and the contract in question has a valid integration clause, must the party demonstrate that it was fraudulently induced to agree to the integration clause itself before it can rely upon prior representations to vitiate the contract, or is it sufficient for a party to show that it was fraudulently induced to enter into the contract as a whole? Relying upon Circle Centre(Dev. Co. v. Y/G Ind., L.P., 762 N.E.2d 176, 179 (Ind. Ct. App. 2002), the district court found that, before Atkinson could invoke any parol evidence, it had to show that it had been fraudulently induced to agree to the integration clause itself. Because we believe that this is too narrow a reading of Indiana law, we reverse,” wrote Judge John Z. Lee, of the Northern District of Illinois, sitting by designation.

“The imposition of an inflexible rule that would require a party claiming fraudulent inducement to demonstrate that he or she was fraudulently induced to agree to the integration clause itself would unreasonably restrict the trial court’s ability to conduct the factual analysis that the Indiana Supreme Court requires,” he continued in Judson Atkinson Candies, Incorporated v. Kenray Associates, Incorporated, Charles A. McGee and Kenneth J. McGee, 12-1035, 12-1036.

The Circuit Court ruled that by invoking a categorical rule without conducting a case-by-case analysis,  the magistrate judge’s decision is inconsistent with the Indiana Supreme Court’s pronouncements in Franklin v. White, 493 N.E.2d 161, 166 (Ind. 1986) and the Indiana Court of Appeals decisions of Prall v. Ind. Nat’l Bank, 627 N.E.2d 1374, 1378 (Ind. Ct. App. 1994), and its progeny.  

The case goes back to the District Court for further proceedings.

 

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  1. I work with some older lawyers in the 70s, 80s, and they are sharp as tacks compared to the foggy minded, undisciplined, inexperienced, listless & aimless "youths" being churned out by the diploma mill law schools by the tens of thousands. A client is generally lucky to land a lawyer who has decided to stay in practice a long time. Young people shouldn't kid themselves. Experience is golden especially in something like law. When you start out as a new lawyer you are about as powerful as a babe in the cradle. Whereas the silver halo of age usually crowns someone who can strike like thunder.

  2. YES I WENT THROUGH THIS BEFORE IN A DIFFERENT SITUATION WITH MY YOUNGEST SON PEOPLE NEED TO LEAVE US ALONE WITH DCS IF WE ARE NOT HURTING OR NEGLECT OUR CHILDREN WHY ARE THEY EVEN CALLED OUT AND THE PEOPLE MAKING FALSE REPORTS NEED TO GO TO JAIL AND HAVE A CLASS D FELONY ON THERE RECORD TO SEE HOW IT FEELS. I WENT THREW ALOT WHEN HE WAS TAKEN WHAT ELSE DOES THESE SCHOOL WANT ME TO SERVE 25 YEARS TO LIFE ON LIES THERE TELLING OR EVEN LE SAME THING LIED TO THE COUNTY PROSECUTOR JUST SO I WOULD GET ARRESTED AND GET TIME HE THOUGHT AND IT TURNED OUT I DID WHAT I HAD TO DO NOT PROUD OF WHAT HAPPEN AND SHOULD KNOW ABOUT SEEKING MEDICAL ATTENTION FOR MY CHILD I AM DISABLED AND SICK OF GETTING TREATED BADLY HOW WOULD THEY LIKE IT IF I CALLED APS ON THEM FOR A CHANGE THEN THEY CAN COME AND ARREST THEM RIGHT OUT OF THE SCHOOL. NOW WE ARE HOMELESS AND THE CHILDREN ARE STAYING WITH A RELATIVE AND GUARDIAN AND THE SCHOOL WON'T LET THEM GO TO SCHOOL THERE BUT WANT THEM TO GO TO SCHOOL WHERE BULLYING IS ALLOWED REAL SMART THINKING ON A SCHOOL STAFF.

  3. Family court judges never fail to surprise me with their irrational thinking. First of all any man who abuses his wife is not fit to be a parent. A man who can't control his anger should not be allowed around his child unsupervised period. Just because he's never been convicted of abusing his child doesn't mean he won't and maybe he hasn't but a man that has such poor judgement and control is not fit to parent without oversight - only a moron would think otherwise. Secondly, why should the mother have to pay? He's the one who made the poor decisions to abuse and he should be the one to pay the price - monetarily and otherwise. Yes it's sad that the little girl may be deprived of her father, but really what kind of father is he - the one that abuses her mother the one that can't even step up and do what's necessary on his own instead the abused mother is to pay for him???? What is this Judge thinking? Another example of how this world rewards bad behavior and punishes those who do right. Way to go Judge - NOT.

  4. Right on. Legalize it. We can take billions away from the drug cartels and help reduce violence in central America and more unwanted illegal immigration all in one fell swoop. cut taxes on the savings from needless incarcerations. On and stop eroding our fourth amendment freedom or whatever's left of it.

  5. "...a switch from crop production to hog production "does not constitute a significant change."??? REALLY?!?! Any judge that cannot see a significant difference between a plant and an animal needs to find another line of work.

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