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Friday, March 25, 2005

PER doesn't bar sales reps' statements in negotiations

New_jersey_flag A franchisor can't use the parol evidence rule to bar a franchisee’s testimony about what its sales people said during negotiations, according to a recent decision by a New Jersey federal court.

In the case, Honeysuckle Enterprises sought a franchise from Travelodge Hotels to operate a hotel in Branson, Missouri.  Sales people from Travelodge allegedly told Honeysuckle that it would get “at least 15 percent reservations” from Travelodge if it joined.  The contract, however, had two clauses:

Neither we nor any person acting on our behalf has made any oral or written representation or promise to you on which you are relying to enter into this Agreement that is not written in this Agreement. You release any claim against us or our agents based on any oral or written representation or promise not stated in this Agreement.

This Agreement, together with the exhibits and schedules attached, is the entire agreement superseding all previous oral and written representations, agreements and understandings of the parties about the Facility and the License.

When Honeysuckle refused to pay the franchise fees to Travelodge, the franchisor sued.  Honeysuckle counterclaimed, seeking rescission for fraud in the inducement and various other claims, including promissory estoppel.  Travelodge moved for summary judgment based on the parol evidence rule.

No dice, said Judge Joseph Greenaway, applying New Jersey law.  The PER doesn’t bar evidence of fraud in the inducement, and the “no representations” clause is something that the jury may or may not choose to believe.  If the contract was induced by fraud, it is voidable, and thus neither the "no representations" clause nor the integration clause would apply.

Travelodge Hotels, Inc. v. Honeysuckle Enterprises, Inc., No. 02-2889, 2005 U.S. District Lexis 2522 (D.N.J. Feb. 16, 2005).

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