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Integration and Merger (Common Clauses)

Updated: Nov 11, 2023

(This post is part of a series called “Common Clauses,” focused on explaining so-called boilerplate provisions of contracts. Click the link to see other posts in this series).


"This Agreement contains every and all agreements between the parties related to the subject matter herein. No other prior or contemporaneous agreements or understandings shall be valid unless expressly incorporated herein."


You have no doubt seen language like this (for example, they will always be in form lease agreements). They go by a few names depending on the jurisdiction (integration clause, merger clause, "entire agreement" clause, etc.). It means the contract itself is the only agreement between the parties.


What is an integration clause?


An integration clause states that all prior agreements have been integrated into the one final contract. All terms that are meant to be included have been included.


This type of clause simply means that all agreements between the parties are in the actual contract document. If there is a question about the meaning, you try and find it within the contract document. If it refers to "Exhibit A" and there is an Exhibit A attached, then that is also included. If it refers to another document (for example, a form of a notice that you have to use), that will be included.


The contract itself is the entire, and the sole, written expression of the agreements between the parties.


What does this mean?


In short, if it isn't in the contract, it doesn't exist. If you have a written letter from the other party contradicting the terms of the contract, that will not be included. If you have an email from the other party that includes a PDF of the contract but the email contradicts the terms of the contract, that email usually will not be included either.


Why is it there?


Unsurprisingly, parties to a contract often fail to read the entire contract. This means that some important language might be excluded. Perhaps language is there that shouldn't be. Sometimes it means that there are ambiguous terms.


The reason for this type of clause is to make absolutely clear that the contract document itself is final. If there is a breach, the contract itself, not a prior email or memorandum of understanding or letter of intent, will be the final source of resolution.


In essence, the clause is meant to make a contractual term out of the parol evidence rule. This rule dates back to English common law, and excludes certain types of evidence from contract disputes (prior written, and prior or contemporaneous oral, evidence).


What if there are other agreements?


If there are other agreements with important terms, you will want them included. To make sure they're included, you can (1) make absolutely sure that those terms are expressed in the contract, or (2) make the earlier agreement an exhibit to the final contract.


What if the transaction is more complex than that?


Not all agreements consist of just one or two contracts. You can have dozens within one complex transaction.


For example, perhaps you own a business that leases space from someone who also has her own business in the same industry as yours. She agrees to purchase your business, you agree to purchase the building that you lease, and the buyer agrees to lease the space back from you (as her new landlord). But this is all predicated on all of these agreements becoming effective. There are at least three agreements: (1) the purchase agreement for the business, (2) the purchase agreement for the building, and (3) the lease agreement. There may be other agreements (personal guaranties, licensing agreements, equipment rentals, etc.).


In this example, you will want to make sure that all agreements that are integral to the overall transaction reference (and are consistent with) one another. Or you can have one general agreement that includes all of these other agreements as exhibits.


What if I forget to include this language?


If you forget to include an integration clause, you might still be protected by the parol evidence rule. So if the other party tries to introduce a non-binding memorandum of understanding or some communication inconsistent with the contract, you may still be able to have those excluded at trial.


Are there any exceptions?


It depends. The big (but still very narrow) exception to this involves certain types of fraud (especially fraud-in-the-inducement). This is a high bar to satisfy, but it can be done (albeit in tort, rather than contract).


Texas case law says that an integration clause, by itself, does not preclude claims for fraud. See Italian Cowboy Partners v. Prudential Ins. Co., 341 S.W.3d 323 (Tex. 2011). This means that a party claiming fraud can still provide evidence that might otherwise be excluded if there was no fraud.


California is a bit more permissive. California allows extrinsic evidence to show the circumstances in which the agreement was entered, to explain an extrinsic ambiguity (or interpret the terms), and to establish an illegality or fraud. See Cal. Code Civ. Proc. section 1856(g).


Conclusion


Integration clauses say that all agreements are included in the contract. If there are other agreements, that they have either been included in the contract, or have otherwise been discarded. Make sure if you want some claim (whether oral, in an email, etc.) included, that you specifically find it in the contract before you sign it. Otherwise, you risk losing it.

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