ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Thursday, December 23, 2010

Merger Clause Defeats Breach of Contract Action in Wisconsin

Wis-capitol Kudos to the State Bar of Wisconsin for some excellent legal reporting.  Joe Forward, a legal writer for the Bar, has posted a thorough case summary  of a recent contracts dispute, Town Bank v. City Real Estate Development LLC, 2010 WI 134 (Dec. 14, 2010).  The case involved a renegotiated loan agreement between the Bank and the LLC.  Originally, the Bank had signed a commitment letter which obligated it to advance $9 million towards a condominium development, subject to certain financing conditions, which the LLC apparently failed to satisfy.

The parties later entered into a "term credit agreement," under which the Bank loaned only $2.5 million and encouraged the LLC to seek alternative financing for the rest.  The Bank later sought a declaratory judgment that no additional financing was required, and the LLC counterclaimed, seeking the additional $6.5 million.  A jury awarded the LLC $600,000, but the appeals court reversed.

The Wisconsin Supreme Court, by a 5-2 margin, upheld the appeals court.  The decision turned on the Majority's finding that the term credit agreement was unambiguous and contained a merger clause that precluded the LLC from introducing evidence of the Bank's prior commitments to provide additional financing.  Two dissenting justices would have allowed consideration of the earlier commitment letter.  The dissenting justices were concerned that the ruling might create uncertainty in contractual relationships since a merger provision in one agreement between the parties could have unforeseen ramifications for earlier agreements between the parties.  Cleverly mining an amicus brief by the Wisconsin Bankers Association for arguments that cut against the Association's interest in the case, the dissenting justices viewed the commitment letter as a stand-alone agreement that must be subjected to separate interpretation from that of the term credit agreement.  

This might be a nice teaching case for those interested in looking for recent takes on the parol evidence rule.


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