Contracting Pitfalls Part Six: Integration Clauses
An integration clause in an agreement states that the contract contains the entire agreement of the parties on the issues covered by the agreement. This means all prior negotiations and potentially side letters or letters of intent are superseded by the final agreement. This is true even if the contract as finally written contains terms different than those discussed. It is a sensible provision to make sure that everyone knows the contract is the final expression of the intent of the parties even though positions might have changed during the negotiations.
The danger of this type of provision is, however, that sometimes there are other agreements that everyone intends to have survive that are effectively negated by this type of language. The integration clause almost always is down in the boilerplate of a document. If there is a side letter agreement or additional documents that are being executed at or about the same time, the better practice would be to identify those as exceptions to the integration clause in order to avoid the possibility that a court would hold that the other documents are superseded by the clause itself. I have seen transactions where there are five or six different contracts being signed all at the same time as part of one overall deal. However, each one of them had an independent integration clause. Obviously, in that instance, this was not very well thought out. We quickly papered over the problem with an additional clarifying document at the closing. But if it had not been caught and corrected, you could see what problems might lie down the road.