A merger clause (a.k.a. integration clause) prevents a party from claiming the contract does not reflect the complete understanding of the parties after the contract was formed. Parties often attempt to do this by relying on pre-contract negotiations or oral agreements after the contract is formed. The merger clause ensures that the written contract is the complete agreement between the parties. A typical merger clause will say, “This agreement contains the entire agreement of the parties.”
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. Merger clauses are placed in these contracts to prevent an employee 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 prevents a buyer or seller from changing these terms.
Merger clauses are generally enforceable. However, some states will not enforce a merger clause unless it is specific as to what terms are merged. An experienced attorney will be able to inform you of what is required for an enforceable merger clause.
A merger clause will be unenforceable will be in a number of circumstances. Courts are most likely to strike down a merger clause if the contract was obtained through misrepresentation, mistake, or fraud. Note that some jurisdictions will strike down a merger clause only if the merger clause itself was the product of misrepresentation, mistake or fraud.
Even if a merger clause is absent from a contract, parties can still be prevented from bringing evidence of pre-contract agreements. One of the hidden understandings of contract law is that the written contract is suppose 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 is a rule that prevents parties from bringing in evidence of an agreement prior to or outside of the written contract. A merger clause is designed to take advantage of the PER by stating, inside the contract itself, that there is nothing outside the contract the courts should examine. In essence, the merger clause exists solely to trigger and enforce the PER.
Drafting contracts can be risky business. When you are a party in a contract, it is important that the contract is legally valid and the expected benefits from the contract are realized. Consult an experienced business attorney to help you through the contract drafting process and ensure that proper clauses are included and valid.