What is a merger clause?
What is the legal consequence of using this clause in a contract?
What are some examples of merger clauses?
In this article, we will break down the notion of the “merger clause” so you know all there is to know about it!
We will first look at the merger clause meaning, then look at its purpose, legal consequences, types of merger clauses, partially and fully integrated agreements, enforcement of merger clauses, sample clauses and more.
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What is a merger clause
A merger clause (integration clause or zipper clause) is a contractual provision where the parties expressly state that the content of their contract supersedes all prior or contemporaneous agreements or understandings between them.
In other words, any other prior agreements between the parties will no longer have any effect and the parties agree to be solely bound by the terms of the agreement where the merger clause is found.
The parties “merge” their entire agreement into one contract
For many lawyers and contracting parties, the merger clause is considered to be irrelevant and not worth the time, energy and money to consider.
May consider a merger clause to represent legalese incorporated in contracts to give it a fuller look and make it more official-looking.
In many cases, the merger clause will be harmless.
However, in other cases, it can make a significant impact on a party’s legal rights and the enforceability of such rights.
Merger clause definition
According to Merriam-Webster’s dictionary, a merger clause is defined as:
a clause in a contract stating that the contract is a complete statement of the agreement and supersedes any prior terms, representations, or agreements whether made orally or in writing
What is notable with this definition is that it’s a contractual clause stating that the contract represents a complete statement of the agreement of the parties.
As such, past promises or representations will not have any legal effect.
Merger clause example
You can spot integration clauses in contracts by looking for commonly used titles like:
- Entire Agreement
- Agreement Precedence
- Final Agreement
- Whole Agreement
In most cases, you’ll see merger clauses titled as “entire agreement”.
Here is an example of a merger clause:
Entire Agreement. The provisions of this Agreement along with the unaltered provisions of the Secured Promissory Note and GSA, incorporated herein by reference, collectively constitute the entire agreement between the parties with respect to its subject matter. All prior or contemporaneous oral and written agreements, memoranda and representations are superseded by this Agreement.
Entire Agreement. This Agreement constitutes the entire agreement between the Company and you concerning the subject matter hereof.
Purpose of a merger clause
Parties to a contract will use a contract integration clause to ensure that the entire content of their agreement and legal obligations are stated in one single contract to avoid legal interpretation issues.
When contracting parties reach side agreements or tentative agreements while negotiating a contract, the merger clause ensures that the contract ultimately signed by the parties will represent the whole understanding of the parties and eliminate the risk of side agreement enforcement.
It is also more practical for the parties to consolidate their understanding of the same object in the same contract rather than having multiple agreements producing legal effects.
Consequences of a merger clause
It’s important to understand the consequences of merger clauses in contracts.
In many contract templates, the merger clause is presented as a standard clause or a boilerplate clause.
Merger clauses are included as boilerplate provisions in contract templates
By accepting a merger clause, you are essentially expressly agreeing to the fact that any past representations, agreements, understandings, whether oral or in writing are superseded by the content of the contract.
As a result, you can no longer rely on pre-contractual commitments or promises in court through the exclusion mechanics of the merger clause.
Merger clauses may be crucial relating to ambiguous contractual obligations
If you are signing a poorly-drafted contract where the duties and obligations of the other party are broadly defined or ambiguous and where you relied on pre-contractual representations, promises and “sales pitches”, in the event of a dispute, the merger clause may become highly relevant.
You’ll want to pay close attention to the merger clause language to ensure you are comfortable with it based on your contracting strategy.
If there are promises that you consider important and would want to enforce in the event of a breach, you must either stipulate it in the contract or consider making a carveout from the merger clause.
A merger clause is intended to exclude any extrinsic evidence of facts from being introduced as forming part of the legal obligations of the parties.
Prior to signing a contract, parties may exchange emails, send text messages or even write a note on the back of a napkin.
These prior agreements, handshakes or understandings, whether they are oral or in writing, will be excluded if a contract includes a merger clause.
On the other hand, without a merger clause, they may be admissible as evidence to explain ambiguous provisions of the contract, add consistent additional terms to the contract or expand on contractual obligations.
Contract merger clause
In this section, we’ll discuss in which types of contracts the merger clause may be used, what types of merger clauses can be leveraged and how to draft one effectively.
Type of contracts
A merger contract can be in any type of contract such as:
What’s important is for the parties to express their intention that the obligations outlined in their agreement represents their entire “agreement” relating to the object of the contract and will override any other arrangements.
Types of clauses
You can have two types of integration clauses in a contract:
- Partially integrated clause
- Completely integrated clause
A partially integrated agreement is when the parties stipulate that some of their past agreements are superseded by this contract but not all.
Partially integrated contract does not supersede prior non-conflicting agreements
In other words, the partial merger clause will supersede any prior agreement that contradicts the terms of the contract but does not supersede prior agreements that add non-conflicting terms to the contract.
Fully integrated contract supersedes all prior agreements
A completely integrated agreement is when the parties state that the content of the contract represents their full, complete and exclusive agreement on the subject matter.
The complete merger clause completely discharges past agreements between the parties related to the object and scope of the contract whether conflicting or not.
Partially integrated agreement
If the parties to a contract have partially integrated their agreements, they may seek the enforcement of prior or contemporaneous agreements or understandings that consistently add to the contract without conflicting with the terms of the contract.
A vendor, in a sales document, promises a client that the software can allow over 100 concurrent users.
The software license agreement provides for a partially integrated agreement.
As such, the client may enforce the pre-contractual sales document promising 100 concurrent user capabilities as a legally binding statement consistently adding to the contract without conflicting with any other terms.
Completely integrated agreement
If a contract was signed with a merger clause leading to a completely integrated agreement, then none of the parties may enforce pre-contractual statements or promises.
A vendor, in a sales document, promises a client that the software can allow over 100 concurrent users.
The contract provides for a completely integrated agreement.
If the software does not allow 100 concurrent uses, the client may not enforce the pre-contractual sales document as a legally binding statement as the contract the vendor does not represent that the software can have 100 concurrent users.
Drafting a merger clause
If you are negotiating or drafting a contract, it’s important to consider having a merger clause or not depending on your desire to bar additional evidence to add to the written agreement or not.
You can strategically include or exclude a merger clause
If you include a merger clause, then your goal is to bar the introduction of additional evidence to add to the written terms of your contract or allow for the enforcement of past agreements or representations.
If you don’t include a merger clause, you are leaving the door open for pre-contractual exchanges, documents, emails, promises, assurances or extrinsic facts to be introduced into your contract to explain certain provisions, consistently add to them or expand on legal obligations.
Merger clause enforcement
Parol evidence rule
In the event of a dispute, a court may need to qualify the merger clause.
Do we have a partially integrated agreement or a fully integrated agreement?
Parol evidence rule guides the court to define contractual content
The legal test that is generally used (parol evidence rule in common law) is for the court to wonder what pre-contractual promises a reasonable person would naturally and normally want to include in the contract.
Depending on the court’s assessment, it may decide that certain prior side deals or commitments may produce legally binding effects and some may not.
Parol evidence rule is not an interpretation rule
The parol evidence rule is not an interpretation rule but rather a rule that defines the content of a contract and its subject matter.
The introduction of a merger clause in a contract is to ensure that extrinsic evidence is not introduced in such a way to vary or alter the terms of the written agreement.
Explaining written terms
If the contract is not totally integrated, further to the parol evidence rule, parol evidence may be admitted explaining certain provisions of the contract.
A party may introduce an email or sales document to further define a contractual obligation
Expanding written terms
Further to the parol evidence rule, extrinsic evidence and facts may be presented to the court to expand on the terms of a written contract to the extent it does not conflict or contradict the written terms.
Contradicting written terms
Contracting parties are generally not authorized to introduce parol evidence to contradict the terms of a written contract regardless of whether a merger clause renders an agreement totally or partially integrated.
The evidence of a consistent additional term is generally admissible.
Restatement (Second) of Contracts
Depending on the jurisdictions, some consider a merger clause to be conclusive in determining whether an agreement is integrated or not.
The Restatement (Second) of Contracts states that the merger clauses can be used and are likely to allow a court to conclude whether an agreement is completely integrated.
If you are looking to have a partially integrated or fully integrated merger clause, the best practice is to draft it as such.
To avoid ambiguity, you may want to use the phrases “partially integrated” or “fully integrated” to leave no doubt as to your intention.
By expressly stating your intention, you put the chances on your side for the court to consider the merger clause to be conclusive and interpret it the right way.
Uniform Commercial Code
UCC varies the common law’s parol evidence rule by making the test more stringent.
In other words, a contract subject to UCC (or a UCC merger clause) may more likely be a partially integrated agreement where prior written or oral agreements may be admissible as evidence in court.
Parties entering into a contract where UCC will find application must ensure that any side deals or promises are carefully considered as they may produce legally binding obligations in the event of a contractual dispute.
United Nations Convention on Contracts
The United Nations Convention on Contracts for the International Sale of Goods (CISG), may apply to parties in CISG countries.
Article 8 of CISG states that due consideration must be given to all relevant circumstances surrounding the negotiation of the contract along with the practice or usage between the parties.
CISG allows for due considerate of all relevant circumstances
As such, promises, understandings or other side dealings can be considered as admissible evidence to add to the scope of the contract.
Under such international sale of goods, even with a merger clause in the contract, the courts may want to admit relevant facts surrounding the contract negotiation and usage.
An anti-merger clause or non-merger clause is a contractual provision where the parties expressly state and agree that by entering into this agreement, they will not merge any other prior understanding or agreements oral or written.
Here is a sample non-merger clause:
Notwithstanding any other provision in this Agreement to the contrary, the provisions of the paragraphs dealing with confidential information, non-solicitation, and non-competition hereof shall survive termination of this Agreement and shall not merge therewith.
Merger clause vs integration clause
A merger clause is also referred to as an integration clause or an entire agreement clause.
Essentially, it’s a contractual provision where the parties state that they are capturing their entire agreement in the written contract and no other prior agreements, understandings or promises to have any legal effect between them.
Merger clause sample
Let’s look at a few sample merger clauses to illustrate how they may be presented in contracts.
Sample integration clause in an employment contract:
With the exception of any employment agreement between you and the Company or its affiliates, this Agreement supersedes any and all prior or contemporaneous oral and/or written agreements between you and the Company and sets out the entire agreement between you and the Company. No variations or modifications hereof will be deemed valid unless set out in writing and signed by the parties hereto.
Merger clause in a retention agreement:
Entire Agreement/Amendment. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and the parties have made no agreement, representations, or warranties relating to the subject matter of this Agreement that are not set forth herein. This Agreement may be amended at any time by written agreement of both parties, but it shall not be amended by oral agreement.
Merger clause in an option agreement:
This Option Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and the Optionee.
Merger clause FAQ
What is a merger clause in a contract?
A merger clause is a contractual clause where the parties state whether past agreements or understandings will be overridden by the terms of the contract or not.
The parties define how to legally enforce prior oral or written agreements
Very often, the merger clause is presented as a standard contractual provision that does not get much attention.
When you have a well-drafted contract adequately expressing the intention of the parties, the merger clause will be essentially irrelevant.
However, when you have non-lawyers drafting contracts or the terms of the contract are ambiguous, the merger clause can have a significant impact on a court’s decision by allowing the introduction of extrinsic evidence and facts as admissible evidence or not.
Why do contracts often have merger clauses?
You’ll want to include a merger clause in your contract for the following reasons:
- To ensure that the terms of your agreement are captured by one contract
- Pre-contractual understandings or communications do not get introduced as evidence to complete or explain contractual provisions
- To avoid conflicting agreements on the same subject matter
With a merger clause, you may express whether you want the agreement to be fully integrated or partially integrated.
A fully integrated agreement means that the contract supersedes all past written or oral agreements.
A partially integrated agreement means that past agreements may explain or consistently add to the terms of the contract.
What is a no merger clause?
A no merger clause (non-merger clause or anti-merger clause) is essentially the opposite of a merger clause.
You are expressly stating that you are not “merging” or “integrating” other agreements by concluding a contract.
What is an integration agreement?
An integration agreement is the same thing as saying an agreement is fully merged.
In other words, it means that the content of the written contract fully integrates all the entire agreement of the parties and the court must not go beyond the four corners of the contract to find the expression of what the parties agreed upon.
What is the legal definition of a merger clause?
The legal definition of a merger clause can be formulated as follows:
A merger clause is a statement from the parties expressing their desire to supersede all past agreements, representations, understandings, promises, whether oral or in writing, relating to the subject matter of their contract.
The parties use a merger clause to exclude any other agreement, evidence such as emails, text messages, voicemails, verbal agreements or other and wish to have the terms of the contract to represent their full, exclusive and legally binding agreement.