An integration clause (a.k.a. merger clause) prevents a party from claiming that the contract does not reflect the complete understanding of the parties after the contract has been formed. Often parties attempt to achieve this by relying on pre-contract negotiations or oral agreements after the contract has been negotiated.
Merger clauses ensure that the written contract is the entire agreement between the parties. A typical merger clause will say, “This agreement contains the entire agreement of the parties.”
What Type of Contracts Contain Merger Clauses?
Merger clauses are found in a majority of contracts. Here are some examples:
- Employment contract: Many employment contracts will specify exactly what benefits an employee will receive, such as health and retirement benefits. In these contracts, merger clauses are designed to prevent employees from claiming they were promised more than the contract provides.
- Sale of goods agreement: Likewise, sale of goods agreements specify the amount of goods, price per unit, time of delivery, and other specific terms in the contract. A merger clause often prohibits a buyer or seller from changing these terms.
Are Merger Clauses Always Enforceable?
Generally, merger clauses are enforceable. However, some states will not enforce a merger clause unless it is clear what terms are merged. An experienced attorney can provide you with insight into what is required for an enforceable merger clause.
What Are Some Examples of Integration Clauses?
Even though the exact language may differ from contract to contract, an integration clause might include language such as this:
“This contract contains the entire agreement of the parties concerning the subject matter of the Contract. The contract supersedes any prior agreements, understandings, or written or oral negotiations. This Contract can only be amended through a written document formally executed by all parties.”
The following are examples of agreements in which integration clauses are commonly used:
- Employment: An employer and employee may often choose to work according to an employment contract. Employment contracts often contain an integration clause to prevent either party from claiming more or less than what was agreed upon in writing.
- Sale of Products: Agreements for the sale of products may require much negotiation in terms of pricing, delivery, and other important aspects of the sale. It may be necessary to include a merger clause to prevent the parties from changing their minds later.
Merger and integration clauses provide parties with clarity regarding those terms in a contract. In heavy verbal negotiations before signing a written contract, they are beneficial to both parties.
When Will a Merger Clause Be Unenforceable?
In certain circumstances, a merger clause will not be enforceable. Courts are most likely to strike down a merger clause if the contract was obtained through misrepresentation, mistake, or fraud. Some jurisdictions would strike down a merger clause only if the merger clause itself was the result of fraud, misrepresentation, or mistake.
What If a Merger Clause Is Not In the Contract?
Even without a merger clause, parties may still be prevented from bringing evidence of pre-contract agreements. It is a hidden understanding of contract law that the written contract is supposed to be the entirety of the agreement. In accordance with that understanding, courts have a rule known as the Parol Evidence Rule (PER).
The PER prohibits parties from presenting evidence of an agreement prior to or outside of the written contract. Merger clauses take advantage of the PER by stating within the contract that there is nothing outside the contract that should be examined by the courts. Merger clauses exist solely to trigger and enforce PERs.
What if an Integration Clause is Violated?
In most cases, an integration clause is violated when a party asserts that a prior oral statement constitutes the agreement rather than the written terms. The presence of an integration clause would require the parties to follow the written agreement rather than any prior agreement.
However, if one party refuses to perform under the written contract, the other can generally file a lawsuit to receive the appropriate remedy. In most cases, the court will issue an injunction requiring the other party to perform their contractual duties.
A non-breaching party may receive monetary damages as compensation for losses caused by non-performance under certain circumstances. However, a plaintiff’s eligibility for a damages award may depend on whether he has requested an injunction first. Therefore, both parties should be aware of the legal implications of an integration clause before incorporating one into their written contract.
Including a Merger Clause
One of the most important rules about merger clauses is to have one. A merger clause can prevent the admission of evidence about side agreements and extra-contractual promises that your client likely intended to leave out of the contract in case of a dispute. Courts could use this to investigate the drafting history of a contract (e.g., the emails and text messages exchanged by the parties prior to contract formation).
The court often justifies the admission of evidence about side agreements by noting that the written contract lacks a merger clause – a clear indication to the opposing party that their lawyer made a drafting error.
It is an easy mistake to avoid. Merger clauses are among your list of essential clauses.
Using the Language Recognized by the Courts
For the written contract to constitute a complete integration, parties should just state that the agreement is “completely integrated.” Why would they not do this?
They shouldn’t describe the writing as merely containing an entire or final agreement between the parties. Instead, they should use the language used by courts.
As an example: “The parties intend for this statement to constitute the entire, exclusive, and fully integrated statement of their agreement. Therefore, it is the sole expression of their agreement, and they are not bound by any other agreements of any kind or nature.”
To give effect to the clause, you need to use language that tracks precedents. A contract is written not only for the parties but also for a hypothetical judge who might someday be called upon to resolve a dispute over the language.
Drafters may very well get away with using language that does not track precedents-this happens all the time. However, if the merger clause is an issue in a dispute between the parties, it could pose a significant problem. Is it worth the risk?
Excluding Trade Usage and Course of Dealing from Merger Clauses
Each agreement has invisible terms:
- Trade usage
- Course of dealing (a sequence of conduct between the parties in previous transactions)
- Course of performance (a sequence of conduct between the parties in the present transaction)
The latter two are often confused. Even for completely integrated contracts governed by the UCC and for common law contracts in some jurisdictions, evidence of trade usage and course of dealing may be admitted despite the parol evidence rule.
How Can a Lawyer Help Me?
Contract drafting can be a risky business. If you are a party to a contract, it’s important that the contract is legally valid and the expected benefits from the contract are realized. Consult an experienced contract attorney to help you through the contract drafting process and ensure that proper clauses are included and valid.
