I thought you said…The Importance of Merger Clauses

Imagine this scenario: The President of Company X is negotiating with the President of Company Y to acquire certain assets for $100,000. Negotiations have stalled but both parties want to close the transaction. So President Y tells President X on the phone “If you can come up with another $10,000, we can sign the contract tomorrow.” President Y replies “I think that we may be able to do that.” The contract is signed the next day for $100,000 without revisions to include the additional $10,000.

Would President Y be able to collect the additional $10,000? Probably not if there is an “Entire Agreement” provision included in the contract (also called a “merger” or “integration” clause).

Here is an example provision:

“This Agreement constitutes the complete and exclusive contract between the parties regarding its subject matter. No other oral, electronic or written communications made prior to or at the time the parties sign this Agreement will have any legal force or effect. Changes to this Agreement may only be made by a written amendment signed by both parties.”

What does it mean?

In essence, this provision means all previous communications, including conversations, emails, and text messages, are merged into and superseded by the contract (visualize 2 lanes on a freeway merging into 1). In other words, it is not a part of the contract if it is not written in the contract.

If there are other documents between the parties that should remain in effect (for example, a nondisclosure agreement), be sure to explicitly list them as being included within the agreement.

A final note

These provisions are found in a variety of agreements such as asset purchase agreements, service agreements, commercial leases, and distribution agreements. They are often placed in the boilerplate “legalese” at the end of a contract that most business people tend to skim through or skip all together. This is one of many reasons why it is a good idea to have an attorney review your contracts before signing.

Categories: Business Contracts

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