Overview of Integration Clauses in Contracts

Integration Clause Definition

An integration clause is a common contractual provision found in many types of commercial contracts, including purchase and sale agreements, partnership agreements, and shareholder agreements. Generally speaking, an integration clause states that a contract or agreement is the whole agreement of the parties, and supersedes all prior representations, negotiations, and agreements, whether written or not, between the parties concerning the subject matter of the agreement . Parties to a contract typically include an integration clause in their contract for the purposes of protecting the contract from being affected by other, prior, or contemporaneous agreements and documents.
In other words, an integration clause acts as a sort of time capsule, which confines the parties to the terms of the contract only. An integration clause is typically enforced by courts unless the conduct of the parties indicates that they intended to be bound by a different agreement.

Advantages of an Integration Clause

"Intrinsic to the essence of a contract is the integration clause that brings harmony to what was agreed upon, including whether any other terms were meant to be part of the agreement," [INSERT NAME], an [INSERT TITLE], explains. "Without this vital component, ambiguities loom; the value of a contract is diminished; disputes become more frequent and complex; resolution becomes time-consuming and more costly; and finally, some of those vague issues may not even be able to be resolved in court."
The value of an integration clause cannot be understated. It works to prevent misunderstandings and disputes over terms or statements that were not included or made part of a contract. For example, lawsuits can arise after the fact when one party believes the other made certain oral statements or representations that did not make it into the contract.
"With an integration clause, there is an implicit disclaimer of all other understandings, agreements or representations between the parties and of their agents that are not expressed in the written agreement," [FIRST INITIAL, LAST NAME] says. "If there is an implicit agreement to this effect, the parties can then claim that no other oral or written statements, conduct or introductions represent the agreement between the two. Otherwise, a major disagreement may arise over implicit and suggestive statements not specified in the contract, which can lead to further costly problems."

Elements of a Strong Integration Clause

The following elements are essential for a well-drafted integration clause:
Specificity. The general rule of contract interpretation is that an integration clause is enforceable only if it contains a "clear and explicit" integration clause. A poorly defined integration clause will be interpreted against the party responsible for the clause’s language. When drafting an integration clause, all parties must agree to what is included in the final document. An imprecise integration clause may result in unintended breach of contract claims where extrinsic evidence may be admitted by courts to enforce a clearly intended but inadequately expressed provision.
Key defined terms. If there are key defined term(s) used in the integration clause, those terms should be defined at the start of the clause after the caption "Definitions". Common defined terms include: "Counterparts", "Dispute Resolution", "Entire Agreement", "Governing Law", etc. These terms are commonly used to facilitate negotiations and drafting efforts, and to ensure predictability in interpretation.
"Entire Agreement" or "Merger" clause. This provision will preclude consideration of all prior oral or written agreements not contained within the final document. Whether the parties are entering into an agreement for the first time, or are negotiating an agreement, this provision signifies that the final agreement contains all of the terms to which the parties have agreed to be bound. This provision is used to preclude collateral claims based on representations made prior to or during negotiation of the agreement.
Specificity of scope and language. The more specific the language used the better. If applicable, it is preferable to emphasize the binding nature of the final agreement document, and to specifically state that the agreement shall supersede "all prior or contemporaneous written or oral agreements concerning the subject matter hereof." The parties should also specifically state either: (a) the contract applies to both current and future claims arising out of the subject matter of the contract; or (b) the contract shall not apply to future claims.
Covenants. Each party should agree to perform their duties in accordance with the contract and agree to the meaning of the terms used in the contract. This will put all parties on notice as to their obligations and will prevent them from claiming a lack of knowledge of the terms of the contract.
Non-reliance. To pre-trial extrinsic evidence of the parties’ course of performance, the final agreement should specifically state the parties have not relied on any representations or information not expressly contained in the final agreement and have agreed to the meaning of the contract’s provisions.
Integration provisions generally conclude with a final paragraph providing that the contract may be amended only by a writing signed by each party. Some contracts omit any reference to the amendment language for various reasons.

Common Mistakes

Often, the use of an integration clause leads people to think that all prior agreements in any form are superseded by the agreement at hand. This is rarely the case. A poorly drafted or limited integration clause should not be relied upon as the only protection against a prior contract. A typical integration clause reads "this document constitutes the entire agreement between the parties concerning this subject matter and supersedes all prior negotiations, representations, and agreements, whether written or oral, concerning the subject matter." Not the entire scope of all prior agreements concerning anything in world is usually intended to be integrated and superseded. As stated, an integration clause should be limited to the subject matter of the agreement in which it is contained. Typically, an integration clause should be limited to "this document constitutes the entire agreement between the parties concerning [this subject matter] and supersedes all prior negotiations, representations, and agreements, whether written or oral, concerning [this subject matter]." A more expansive supersedence "[s]hould be used with care and only where the parties clearly intend the integrated agreement to replace prior agreements on all matters pertaining to the subject matter." See Restatement (Second) of Contracts § 213(1).
In addition, in order establish that the agreement in which an integration clause is contained is the parties’ entire agreement, needs to be demonstrated. See Id. § 210 cmt. b. Courts typically use two factors to determine if an agreement should be integrated, whether "length and completeness" of the writing and whether the agreement "describes itself as the complete agreement between the parties." See Id. § 210 cmt. b. For example, a "rider (an addition to the main agreement [that]) merely adds three provisions . . . does not demonstrate that the parties intended to integrate their entire bargain." Id. Conversely, a "ten page purchase agreement . . . with six negotiable provisions" that describes itself as a "complete agreement between the parties" shows integration. Id.

Case Studies Involving Integration Clauses

A simple search through the jurisprudence will reveal that a number of cases where integration clauses were pivotal to the outcome. Two common examples are when post-agreement correspondence record, clarify or otherwise assist the parties’ conduct as to whether or not a contract was formed at all, and when there is a dispute about whether the conditions for a contract’s termination were fulfilled.
In Intercontinental Growth Fund Ltd v Dorsey & Whitney (London) LLP the agreement in question was a shareholders’ resolution that set out the basis for the contribution of 15.5% by each of three shareholders in the company to a settlement of all claims by the company against third parties arising out of the company’s failed relationship with Lexi Holdings PLC (the "Settlement Agreement"). The point of contention was whether the Settlement Agreement was properly terminated or not. Specifically, the claimant argued that termination of the Settlement Agreement was valid because it was in accordance with an implied right to terminate set out in the Settlement Agreement and therefore Clause 10 of the Settlement Agreement did not apply.
The defendants argued that the Settlement Agreement was validly terminated in accordance with Clause 10. The dispute over what was meant by Clause 10 involved much tactical legal analysis. The case was heard at first instance by Mrs Justice Proudman, and on appeal to the Court of Appeal by Lord Justice Moore-Bick, Lady Justice Hallett and Lord Justice Lawrence Collins.
The court gave careful consideration to Clause 10 of the Settlement Agreement and came to the conclusion that the clause referring to the termination required a "no fault" basis for termination, rather than a "documentary evidence" basis (i.e. a "paper trail" in the form of letters or emails). In effect, the court found for the defendants and said that the Settlement Agreement remained in force. The case demonstrates that in circumstances where it was arguable that the parties had not properly concluded an agreement, the mere presence or absence of an integration clause will not necessarily be determinative.
Another example of a case where an integration clause was not determinative was the case of Haydon v Mallalieu, Buckett and Price. In this case, the claimant , the purchaser of a flat claimed that the defendant solicitor (a partner in the law firm that acted for the claimant and the vendor) was negligent in failing to register the change of title of the flat at the Land Registry.
The relationship between solicitor and client is based on contract. If there is a dispute between the two parties, the contract will set out the basis upon which the relationship exists throughout and beyond the period that the services were provided. In Haydon, the contract between the solicitor and the client was contained in letters that the solicitor had sent to the client confirming that he would be acting on behalf of the client.
The defendant solicitor admitted his negligence in having failed to ensure that the change of ownership was registered. However, he contended that the claimant had expressly agreed with him that he should not be liable for his negligence after completion of the sale and purchase and had in any event waived his right to sue him.
As mentioned above, the contract between the parties was contained in letters. At the same time that the last letter referenced below was sent, the defendant also asked the claimant to sign a drill-in-blank form, dated 24 July 1989 that contained the following:
By completing the form, the claimant purported to agree to not holding the defendant liable "for any negligence, error or omission in relation to any matter on which you [the defendant] have been retained on my behalf". In relation to that particular statement, he qualified his acceptance by hand writing on the form "in relation to this matter only". The letter that the defendant sent with the form to the claimant asked him to sign the form "to confirm our agreement that you will not hold us liable in relation to the exchanges of contracts and the substantial completion of your purchase of 14 Lordship Park".
The claimant sought to distance himself from the points made in the handwritten qualification that he added to the form (in relation to the qualifying words not being in alignment with the body of the document, the spacing of letters, style of lettering, etc). The judge recognised that the contract between the parties was contained in the letters and left the written agreement unimpeached.
The above example illustrated that the integration doctrine is not always determinative when it concerns an action in tort (negligence) alone.

How to Draft an Integration Clause

We have three rules of thumb for creating an integration clause:
• Contact your commercial contract lawyer before using boilerplate
• Nail down the essential deal points before the contract is signed
• Say what you mean—understand what it means
Contact your commercial contract lawyer before using boilerplate.
Because the integration clause is often used as a boilerplate provision at the end of a contract, the parties to a contract need the expertise of an experienced commercial contract lawyer to draft an integration clause that can withstand judicial scrutiny:
• Determine if an integration clause is required
• Determine whether it will be effective in the relevant jurisdiction
• Determine whether the clause requires additional custom language
• Determine whether the clause is uniformly applied to all transactions between the parties
• Determine whether the parties’ actions and communications are likely to defeat the effect of the clause
• Determine whether the clause is ambiguous
Nail down the essential deal points before the contract is signed.
A contract is not an integrated document if the parties did not intend at the time the contract was executed for it to contain all material provisions.
Say what you mean—understand what it means.
Above all, the drafter must know what an integration clause is intended to accomplish. The most important purpose of the clause is to establish that the writing in the contract is the intended final and complete expression of the agreement between the parties. Further, an integration clause serves other purposes such as:

Integration Clauses vs. Other Contract Clauses

Integration clauses are separate and independent from other contract clauses like severability clauses or amendment clauses. An integration clause is a stipulation in a contract that states that the agreement is a complete and final representation of the parties’ intentions. An integration or merger clause (or both) may be included in an agreement to say that the agreement is the final expression of the parties’ intentions. If the contract has been fully performed, a court will generally rely on the integration clause. If the contract remains unperformed, however, a court might look to whether performance has been completed, the surrounding circumstances regarding why a contract was entered into, and the nature and circumstances of the contract’s formation. Parties can include merger and amendment clauses in a contracts that contain integration clauses to further limit the circumstances when a court can look at outside evidence or rely on prior agreements .
Severability clauses in a contract state that if any part of the contract is found to be void, the remainder of the contract should be given effect. An amendment clause explains the steps needed to modify the terms of the agreement in the future. A contract could have an integration clause, an amendment clause, and a severability clause. For example:
This Agreement is the final, complete and exclusive statement of the agreement between the Parties with respect to the subject matter hereof. This Agreement supersedes all prior agreements and understandings, oral or written, between the Parties with respect to the subject matter hereof. No amendment to this Agreement will be effective unless the amendment is in writing and signed by the Parties. If any provision of this Agreement is invalid or unenforceable, such provision will be severable from and will not affect the validity or enforceability of the remainder of this Agreement.