Before, during, and after signing a contract, people discuss and agree on various issues. Sometimes, on the phone, through verbal discussions, emails etc. It happens that not all of these agreed terms find their way into the written contract. Some post-contract proposals and agreement may not be recorded.
In the performance of obligations, an unsatisfied party may press claims that the other has not fully fulfilled his obligations. Some people may also claim that they did not fully understand or consent to all the provisions/terms in the contract. That is when merger clauses come into the picture.
Mergers clauses, also known as integration clauses, are put into contracts to signify that the written agreement represents the entirety of the agreement, and it contains all the matters and obligations pertaining to the contract. It signifies that both parties understand fully what the terms of the contract are, and any other subsequent claims, provisions or consented change of obligations which are not recorded in the written contract will not be binding on the contract.
A typical example of a merger clause could be, “This written agreement contains all terms pertaining to this contract, are fully understood and agreed upon by the parties.”
In which types of contracts are merger clauses used?
Merger clauses are inserted into various forms of contracts such as sale of goods agreements, employment contracts, hire purchase agreements.
Many employment contracts are specific about the very benefits an employee should enjoy such as rent allowances, health and retirement benefits etc. Employers insert merger clauses into employment contracts to safeguard against possible future claims by the employee that he was promised more than he receives.
Traders and service providers also specify the number of goods or the kind of service requested, the delivery period, price, and other specific details of the contract. Merger clauses are put into these contracts so that both the buyer and seller cannot change the terms.
Enforceability of merger clauses
Generally, merger clauses are enforceable but in some places there are certain exceptions or rules for enforcement. In some states, the law courts will not enforce merger clauses which are not specific about what constitutes the merged terms. Experienced attorneys of that jurisdiction can tell the requirements of an enforceable merger clause.
There are instances where, although a merger clause is specific about the merging terms, it will not be enforced. Commonly known reasons are; when the contract was obtained mistakenly, through misrepresentation, or by fraud.
In some jurisdictions, even though a contract may have been agreed through an appropriate procedure, the merger clause will be unenforceable if the merger clause itself was inserted through misrepresentation, fraudulently, or by mistake.
What happens to contracts without merger clauses?
Even if a written contract has no merger clause in it, the contracting parties can still be barred from providing any other pre-contract agreement(s) or oral agreements as evidence.
In law, it is assumed that written contracts contain all matters agreed upon by the parties. Merger clauses only take advantage of an already existing rule in practice known as the Parol Evidence Rule.
This rule dictates that any evidence which is outside the written contract should be disregarded. In actual sense, merger clauses exist in contracts only to affirm or enforce the Parol Evidence Rule.