Disclaimer and Merger Clauses in Contracts

In Legacy Academy, Inc. v. Mamilove, LLC, Case No. S14G1891 (decided April 20, 2015), the Georgia Supreme Court reinforced a long-standing rule in Georgia that disclaimer and merger clauses in contracts are effective to defeat claims that a party to a contract was defrauded by promises and representations not reflected in that contract.

Mamilove and its officers had sued Legacy Academy for rescission of a franchise agreement and for damages relating to the purchase of a franchise. The franchisees claimed that they had received from the franchisor representations about the future earnings of the franchise. However, the franchise agreement they signed included statements that Legacy Academy had made no representations about future sales or profits. It also contained a merger clause stating that the agreement represented the “entire agreement of the parties with respect to the matters contained herein.” Opinion, p. 9. To prevent those provisions from defeating their fraud claims, the franchisees argued that when they were presented with the agreement, the franchisor told them that they had to sign documents immediately or another franchisee would be allowed to take their desired location. Opinion, p. 6. The case went to trial, and the jury returned a significant verdict in favor of the franchisees. In a 4-3 decision, the Georgia Court of Appeals affirmed that verdict.

However, the Georgia Supreme Court reversed. The Supreme Court noted that under “well-settled law,” a party who has the capacity and opportunity to read a contract cannot claim that he was defrauded by representations that are different from what is contained in the contract unless he has been subject to a fraud that prevents him or her from reading the contract. Opinion, p. 5. The Court concluded that pressure to sign the contract was not the type of fraud that prevented the franchisees from reading it. Opinion, p. 6. Because the representations in the agreement were in conflict with the franchisees’ claims of fraud outside of the agreement, the franchisees could not rescind it.

Further, the Supreme Court rejected the franchisees’ fraud damage claims because the presence of a merger clause in the agreement prevented the franchisees from basing a claim of deceit upon pre-contract representations. Opinion, pp. 9-10. By virtue of the merger clause in a binding agreement, the only actionable representations were those in the agreement.

In reversing the decision of the Georgia Court of Appeals, the Georgia Supreme Court resolved doubts created by the decision of the Georgia Court Appeals and reinforced the utility of mergers and disclaimers clauses in contracts.

For more information on mergers and disclaimers clauses, contact your Appellate counsel at Smith, Gambrell & Russell.


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