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By now, some of you have heard my story about an integration clause in a contract. I am unapologetic about the length of this OP, but I think you should read it. This subject touches on just about all aspects of contract law, and we will all at one point or another be involved in the execution of contracts for a variety of reasons. Minnesota law requires me, as a paralegal, to tell you that this is NOT legal advice. I am not an attorney, not licensed to practice law, and I don't dispense legal opinions. If you need one, consult an attorney.
If you are not going to study this now, bookmark it and come back to it before you sign any of the larger contracts in your life. I am going to show you what to look for.
Here's a little LAW for you on the LAW regarding integration clauses :
The term "integration clause" is in turn defined as "a contractual provision stating that the contract represents the parties' complete and final agreement and supersedes all informal understandings and oral agreements relating to the subject matter of the contract [Tiburzi v. DOJ, 269 F.3d 1346, 1354 (Fed. Cir. 2001)
From Wikipedia :
In contract law, an integration clause, merger clause, (sometimes, particularly in the United Kingdom, referred to as an entire agreement clause) is a clause in a written contract that declares that contract to be the complete and final agreement between the parties. It is often placed at or towards the end of the contract.
This can enter into all forms of contracts from employment agreements to business structure, partnership agreements, buyout agreements, asset purchase agreements, or any other legal agreement.
It can be a single sentence, or a paragraph. It can be a stand alone point, or buried within the subtext of another portion of the agreement. The purpose of an integration clause is to prevent one party from later claiming that what the parties actually agreed to was different from what was written in the contract.
From the most basic legal understanding (and @Esquire feel free to add a legal interpretation here) an integration limits the discussion regarding specific contract issues to the text contained within the contract itself. If someone brings a legal action regarding the contract, a carefully worded integration clause means that the law will only concentrate on the actual wording and language of the contract itself. No external evidence is generally allowed to enter as evidence to validate or negate the case for or against the lawsuit --- literally the only admissible evidence is the contract itself.
Here's how that might affect litigation :
1. You have a second contract governing other aspects of the relationship. The second contract is inadmissible as it pertains to the contract in question. The only consideration regarding interpretation of the contract in question... is the contract itself.
2. You have emails documenting pre-draft understandings of the agreement, relationships, or terms. The emails are inadmissible as it pertains to the contract in question. The only consideration regarding interpretation of the contract in question... is the contract itself.
3. The contract was merely to serve as a placeholder for future discussions, amendments, or memorialization of a developing business. Doesn't matter what other discussions or intent existed... it is inadmissible as it pertains to the contract in question. The only consideration regarding interpretation of the contract in question... is the contract itself.
In short, a carefully drafted integration clause in an agreement trumps any other anecdotal facts pertaining to the subject of the contract. Where this becomes problematic are in two different aspects:
1. If you assume good faith on behalf of the people you are doing business with. You all are working towards the same objective, and the contract doesn't cover every minutia of the discussions and intentions. You look at the contract as merely a skeleton or rough outline of the project, partnership, or acquisition. If there's an integration clause, it can be determined that the contract is the ONLY formal agreement in place. Terms, conditions, agreements, or other material aspects of your agreement, if they live outside of the contract, might not be admissible in most cases as evidence.
2. If the integration is slipped into the contract without you even being aware that it is there, only to be used later as a trigger to contain a lawsuit within the four corners of the contract itself. You sue someone later for an issue larger than the contract, but the only thing the court will consider is what is contained within the contract itself.
So... what do you do about Integration Clauses?
My initial reaction was that I was never going to sign an agreement that included one. I struck integration clauses out of several agreements because they're a limiting factor, and in the event of litigation, I want to be able to introduce full evidence in a future lawsuit. That may work in some instances, however... integration clauses are not only common, but non-negotiable by some large corporations.
In the event you are up against a non-negotiable integration clause (i.e. Wad-Mart doesn't want to take it out of their vendor agreement) you just have to ensure that every single aspect of your agreement, from performance to financial, etc... exists within the 4 corners of the agreement. Nothing can be left out. There is no reason that a contract can't fully and clearly memorialize all aspects of a financial transaction. In the event you are dealing with adversaries who create reasons that "we can revise this later..." that is your sign that something is wrong.
Some reasons adversaries may propose that the contract (which includes an integration clause) should be executed without a comprehensive memorialization of the agreement can include :
1. Our financials are audited as we're a publicly held company, so we want to do the deal now but can modify it after the close of the fiscal year
2. We don't have time to create a document that covers every single aspect of every discussion we have had, but we're all on the same page anyway, right?
3. This is the agreement we use with everybody
4. This is the only agreement our legal department will approve
5. We can change this later
6. We have a separate agreement that covers separate aspects of this
7. We can't commit in writing to everything we've agreed to do, but we will do it
8. Obviously we wouldn't be doing this deal if not for those terms. We just can't specify them in this contract
9. We're a huge company. We're not going to screw you. That's not how we do things.
10. As long as everyone does what they are supposed to do, the contract is almost immaterial
11. The contract is a formality
12. We need this executed by Friday to make this deal work (30 pages of legal text)
There's really only one thing to do here, and that is to be as methodical as you need to be with legal analysis of contract language. All of the things you may have heard (that there's bias against a contract drafter in favor of the non-drafter) etc... can be checkmated by the integration clause itself. Any previous negotiations may be superseded by the language of the agreement itself.
Here's a great sample clause from Wikipedia. This is the type of thing you are looking for to determine if an integration clause exists within your contract :
"This Agreement, along with any exhibits, appendices, addenda, schedules, and amendments hereto, encompasses the entire agreement of the parties, and supersedes all previous understandings and agreements between the parties, whether oral or written. The parties hereby acknowledge and represent, by affixing their hands and seals hereto, that said parties have not relied on any representation, assertion, guarantee, warranty, collateral contract or other assurance, except those set out in this Agreement, made by or on behalf of any other party or any other person or entity whatsoever, prior to the execution of this Agreement. The parties hereby waive all rights and remedies, at law or in equity, arising or which may arise as the result of a party’s reliance on such representation, assertion, guarantee, warranty, collateral contract or other assurance, provided that nothing herein contained shall be construed as a restriction or limitation of said party’s right to remedies associated with the gross negligence, willful misconduct or fraud of any person or party taking place prior to, or contemporaneously with, the execution of this Agreement."
You're blessed if they use something that clear and direct, because at least this would be easy to spot.
Here's a great article for authors about sneaky non-compete clauses, the sister of the integration clause, that can be slipped into a publishing agreement. It's not identical to an integration clause, but it is along the lines of the same discussion of a term being inserted into a formal agreement which may seem harmless at the time, but that governs future actions :
http://kriswrites.com/2012/02/23/the-business-rusch-competition/#sthash.0OLNnnMo.dpbs
Here are a few samples of integration clauses I culled from a quick internet search :
“This Contract contains the entire agreement of the parties with respect to the subject matter of the Contract. The contract supersedes any prior agreements, understandings, or negotiations, whether written or oral. This Contract can only be amended through a written document formally executed by all parties.”
They can simply stick a sentence like this one in somewhere :
"represent the complete agreement of the parties and supersedes any and all prior agreements."
"This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes (along with the documents [referred to in this Agreement and] [listed on Exhibit A]) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter."
This is a simple, unassuming and seemingly harmless sentence that could be added to any contract, but this one sentence could have wide ranging consequences in ANY agreement :
This document contains the entire agreement between the parties. This Agreement cannot be modified unless an authorized representative of the company and I agree to do so in writing.
Understand that one sentence above may preclude you from introducing ANY outside evidence... anything that doesn't exist within the contract ... as evidence in a legal proceeding about the contract. It could be successfully argued that anything that you have to say that is not within the 4 corners of the contract itself is inadmissible.
Your employer wants the language because they don't want you to claim that they promised you a big bonus two months later, or that they told you not to worry about that noncompete stuff. Their lawyers put it in so they make sure you can't come after them based on a side verbal agreement.The language is there to protect your employer, your suitor, or your adversary. Nothing they said, outside of the contract applies if you sign this. Nothing they promised, nothing they said, and nothing they even put in writing matters before or after you execute this contract.
Conclusion :
Entrepreneurs tend to move at lightning speed. We make fast decisions, and some times fast mistakes. We do deals, we forge agreements, and we deal with a lot of legal stuff. Some times, we think we know more than we do. Some times, we move too fast. In contracts, some times every single word selected was selected for a specific reason.
The best strategy for dealing with contracts is to find someone educated and wise in terms of contract drafting, business law, and business writing. Many contracts have language that is written in legalese, and written to bias a subject, an individual, or a company at the expense of someone else. Something that might seem simple and straightforward to you can still benefit from careful examination by someone smarter than you. It's been said on this forum many times that truth can survive scrutiny and examination.
An integration clause is not by definition evil in and of itself. It is a legal device that is deployed routinely to protect both sides of an agreement, as long as the agreement is correctly memorialized in the agreement in question. Knowing what to look for, what it means, and how to live within or outside of an integration agreement can be the difference between success or failure when it comes to performance and expectations under execution of any contract.
- Vigilante
If you are not going to study this now, bookmark it and come back to it before you sign any of the larger contracts in your life. I am going to show you what to look for.
Here's a little LAW for you on the LAW regarding integration clauses :
The term "integration clause" is in turn defined as "a contractual provision stating that the contract represents the parties' complete and final agreement and supersedes all informal understandings and oral agreements relating to the subject matter of the contract [Tiburzi v. DOJ, 269 F.3d 1346, 1354 (Fed. Cir. 2001)
From Wikipedia :
In contract law, an integration clause, merger clause, (sometimes, particularly in the United Kingdom, referred to as an entire agreement clause) is a clause in a written contract that declares that contract to be the complete and final agreement between the parties. It is often placed at or towards the end of the contract.
This can enter into all forms of contracts from employment agreements to business structure, partnership agreements, buyout agreements, asset purchase agreements, or any other legal agreement.
It can be a single sentence, or a paragraph. It can be a stand alone point, or buried within the subtext of another portion of the agreement. The purpose of an integration clause is to prevent one party from later claiming that what the parties actually agreed to was different from what was written in the contract.
From the most basic legal understanding (and @Esquire feel free to add a legal interpretation here) an integration limits the discussion regarding specific contract issues to the text contained within the contract itself. If someone brings a legal action regarding the contract, a carefully worded integration clause means that the law will only concentrate on the actual wording and language of the contract itself. No external evidence is generally allowed to enter as evidence to validate or negate the case for or against the lawsuit --- literally the only admissible evidence is the contract itself.
Here's how that might affect litigation :
1. You have a second contract governing other aspects of the relationship. The second contract is inadmissible as it pertains to the contract in question. The only consideration regarding interpretation of the contract in question... is the contract itself.
2. You have emails documenting pre-draft understandings of the agreement, relationships, or terms. The emails are inadmissible as it pertains to the contract in question. The only consideration regarding interpretation of the contract in question... is the contract itself.
3. The contract was merely to serve as a placeholder for future discussions, amendments, or memorialization of a developing business. Doesn't matter what other discussions or intent existed... it is inadmissible as it pertains to the contract in question. The only consideration regarding interpretation of the contract in question... is the contract itself.
In short, a carefully drafted integration clause in an agreement trumps any other anecdotal facts pertaining to the subject of the contract. Where this becomes problematic are in two different aspects:
1. If you assume good faith on behalf of the people you are doing business with. You all are working towards the same objective, and the contract doesn't cover every minutia of the discussions and intentions. You look at the contract as merely a skeleton or rough outline of the project, partnership, or acquisition. If there's an integration clause, it can be determined that the contract is the ONLY formal agreement in place. Terms, conditions, agreements, or other material aspects of your agreement, if they live outside of the contract, might not be admissible in most cases as evidence.
2. If the integration is slipped into the contract without you even being aware that it is there, only to be used later as a trigger to contain a lawsuit within the four corners of the contract itself. You sue someone later for an issue larger than the contract, but the only thing the court will consider is what is contained within the contract itself.
So... what do you do about Integration Clauses?
My initial reaction was that I was never going to sign an agreement that included one. I struck integration clauses out of several agreements because they're a limiting factor, and in the event of litigation, I want to be able to introduce full evidence in a future lawsuit. That may work in some instances, however... integration clauses are not only common, but non-negotiable by some large corporations.
In the event you are up against a non-negotiable integration clause (i.e. Wad-Mart doesn't want to take it out of their vendor agreement) you just have to ensure that every single aspect of your agreement, from performance to financial, etc... exists within the 4 corners of the agreement. Nothing can be left out. There is no reason that a contract can't fully and clearly memorialize all aspects of a financial transaction. In the event you are dealing with adversaries who create reasons that "we can revise this later..." that is your sign that something is wrong.
Some reasons adversaries may propose that the contract (which includes an integration clause) should be executed without a comprehensive memorialization of the agreement can include :
1. Our financials are audited as we're a publicly held company, so we want to do the deal now but can modify it after the close of the fiscal year
2. We don't have time to create a document that covers every single aspect of every discussion we have had, but we're all on the same page anyway, right?
3. This is the agreement we use with everybody
4. This is the only agreement our legal department will approve
5. We can change this later
6. We have a separate agreement that covers separate aspects of this
7. We can't commit in writing to everything we've agreed to do, but we will do it
8. Obviously we wouldn't be doing this deal if not for those terms. We just can't specify them in this contract
9. We're a huge company. We're not going to screw you. That's not how we do things.
10. As long as everyone does what they are supposed to do, the contract is almost immaterial
11. The contract is a formality
12. We need this executed by Friday to make this deal work (30 pages of legal text)
There's really only one thing to do here, and that is to be as methodical as you need to be with legal analysis of contract language. All of the things you may have heard (that there's bias against a contract drafter in favor of the non-drafter) etc... can be checkmated by the integration clause itself. Any previous negotiations may be superseded by the language of the agreement itself.
Here's a great sample clause from Wikipedia. This is the type of thing you are looking for to determine if an integration clause exists within your contract :
"This Agreement, along with any exhibits, appendices, addenda, schedules, and amendments hereto, encompasses the entire agreement of the parties, and supersedes all previous understandings and agreements between the parties, whether oral or written. The parties hereby acknowledge and represent, by affixing their hands and seals hereto, that said parties have not relied on any representation, assertion, guarantee, warranty, collateral contract or other assurance, except those set out in this Agreement, made by or on behalf of any other party or any other person or entity whatsoever, prior to the execution of this Agreement. The parties hereby waive all rights and remedies, at law or in equity, arising or which may arise as the result of a party’s reliance on such representation, assertion, guarantee, warranty, collateral contract or other assurance, provided that nothing herein contained shall be construed as a restriction or limitation of said party’s right to remedies associated with the gross negligence, willful misconduct or fraud of any person or party taking place prior to, or contemporaneously with, the execution of this Agreement."
You're blessed if they use something that clear and direct, because at least this would be easy to spot.
Here's a great article for authors about sneaky non-compete clauses, the sister of the integration clause, that can be slipped into a publishing agreement. It's not identical to an integration clause, but it is along the lines of the same discussion of a term being inserted into a formal agreement which may seem harmless at the time, but that governs future actions :
http://kriswrites.com/2012/02/23/the-business-rusch-competition/#sthash.0OLNnnMo.dpbs
Here are a few samples of integration clauses I culled from a quick internet search :
“This Contract contains the entire agreement of the parties with respect to the subject matter of the Contract. The contract supersedes any prior agreements, understandings, or negotiations, whether written or oral. This Contract can only be amended through a written document formally executed by all parties.”
They can simply stick a sentence like this one in somewhere :
"represent the complete agreement of the parties and supersedes any and all prior agreements."
"This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes (along with the documents [referred to in this Agreement and] [listed on Exhibit A]) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter."
This is a simple, unassuming and seemingly harmless sentence that could be added to any contract, but this one sentence could have wide ranging consequences in ANY agreement :
This document contains the entire agreement between the parties. This Agreement cannot be modified unless an authorized representative of the company and I agree to do so in writing.
Understand that one sentence above may preclude you from introducing ANY outside evidence... anything that doesn't exist within the contract ... as evidence in a legal proceeding about the contract. It could be successfully argued that anything that you have to say that is not within the 4 corners of the contract itself is inadmissible.
Your employer wants the language because they don't want you to claim that they promised you a big bonus two months later, or that they told you not to worry about that noncompete stuff. Their lawyers put it in so they make sure you can't come after them based on a side verbal agreement.The language is there to protect your employer, your suitor, or your adversary. Nothing they said, outside of the contract applies if you sign this. Nothing they promised, nothing they said, and nothing they even put in writing matters before or after you execute this contract.
Conclusion :
Entrepreneurs tend to move at lightning speed. We make fast decisions, and some times fast mistakes. We do deals, we forge agreements, and we deal with a lot of legal stuff. Some times, we think we know more than we do. Some times, we move too fast. In contracts, some times every single word selected was selected for a specific reason.
The best strategy for dealing with contracts is to find someone educated and wise in terms of contract drafting, business law, and business writing. Many contracts have language that is written in legalese, and written to bias a subject, an individual, or a company at the expense of someone else. Something that might seem simple and straightforward to you can still benefit from careful examination by someone smarter than you. It's been said on this forum many times that truth can survive scrutiny and examination.
An integration clause is not by definition evil in and of itself. It is a legal device that is deployed routinely to protect both sides of an agreement, as long as the agreement is correctly memorialized in the agreement in question. Knowing what to look for, what it means, and how to live within or outside of an integration agreement can be the difference between success or failure when it comes to performance and expectations under execution of any contract.
- Vigilante
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