WHAT IS A MERGER CLAUSE?
Most contracts have terms near the end of the contract that is glossed over or mainly ignored by parties that sign them. One common provision sometimes called a merger clause, typically says something like: “This Agreement constitutes the entire agreement of the parties superseding any prior oral or written statements of the parties relating to the subject matter of this Agreement.” This provision common to most commercial agreements trumps all prior written statements. A prior written statement could say that the opposing party will pay you $10M, but if the agreement says $1M, you get $1M and the prior writing is not even admissible in a trial.
If the parties intend their writing as a final expression of one or more terms of an agreement, the agreement is said to be integrated—a word that continues to have vitality in the parlance of contract law despite its analytical uselessness. To make matters worse, there are two kinds of integration:
A partially integrated agreement is intended by the parties as a final expression of some, but not all, terms of their agreement. It discharges prior or contemporaneous agreements that contradict the subsequent writing. However, it does not discharge prior or contemporaneous agreements that contain consistent additional terms that do not contradict the writing.
A completely integrated agreement is intended by the parties as a complete and exclusive statement of the terms of the agreement. Like partially integrated agreements, it discharges any prior or contemporaneous agreements that contradict the writing. Unlike partially integrated agreements, it also discharges any prior or contemporaneous agreements that are within the scope of the agreement—even consistent additional terms that don’t contradict the writing are excluded.
If the alleged prior or contemporaneous oral agreement contradicts the terms of the subsequent written contract, the prior oral agreement is inadmissible regardless of whether the written agreement is partially or completely integrated. The difficult cases—the ones that erupt into litigation—are those where there is no contradiction between the prior oral agreement and the subsequent written contract. Determining whether the prior oral agreement is admissible hinges on whether the written contract is completely or partially integrated. But how do courts make this determination? If partially integrated, then there is a chance the oral agreement or other writing is admissible.
The message is to pay attention. Read everything when you are negotiating it and importantly before you sign it. Without fraud, if you sign the wrong version of the agreement you are stuck with it. If key terms are missing, include them in the written agreement. Do not rely on some other email or written statement. If you do attempt to rely on another writing outside of the contract, you likely will not have a good day in court.