When entering into a contract on behalf of yourself or your business, it is crucial to make sure everything that you negotiated has actually been put in writing in the contract. If something gets left out of the contract, there is a good chance that you won’t be able to enforce or rely on that particular item. This is because most contracts include a “merger clause.”
A merger clause is a contract provision that indicates that everything that the parties agreed upon has been written in the contract, and consequently, no other documents or statements could be used in court to prove that the contract was intended to say something else, or that something was left out. If a contract contains a merger clause, the only enforceable way to change something in the contract is to write an amendment to the contract, which must be signed by all parties to the original contract.
The following is a typical merger clause:
A. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the matters to which it pertains and supersedes all negotiations, agreements, representations, warranties or commitments, whether in writing or oral, relating to such matters, except as may be set forth in writing and signed by the parties. No subsequent agreements, representations, warranties or commitments shall be binding upon the parties unless set forth in writing and signed by each of the parties.
For example, a company entered into a contract with a resort for a convention.[1] The company claimed that the resort promised to use union labor, but this was not included in the written contract (which contained a merger clause). A couple months later, the resort was sold and all the union employees were let go. The company canceled the contract based on the union provision, and the resort sued. The resort prevailed because of the merger clause, which prevented the company from introducing any evidence regarding the union labor requirement. The union labor agreement was outside the “four corners” of the contract and therefore inadmissible as evidence.
How can you protect yourself or your business against the potential negative effects of a merger clause? First, keep a detailed list of all points that are negotiated and should go into the contract. Prior to signing, review the contract to make sure all important points are included. Second, pay attention to whether the contract includes a merger clause (something similar to the example provided above – look for the words “entire agreement” or “merger”). Third, if a contract does include a merger clause, but you didn’t realize until after signing that a particular point was left out, contact an attorney or the other party to the contract as soon as possible. It still may be possible to amend the contract in writing to include the omitted provision.
[1] UAW GM Human Resource Center v. KSL Recreation Corp., 228 Mich. App. 486; 579 N.W.2d 411 (1998).
