Business Law Breakdown: The Importance of Merger and Integration Clause in Commercial Contracts

Commonly in commercial contracts, there exists a clause called a Merger and Integration Clause. What is this particular clause and why is it so important in commercial contracts? A merger and integration clause in a commercial contract states that what is written in the contract is the deal and no other said deal exists outside of that. This particular clause becomes important and useful if resolving contract conflicts when dealing with commercial contracts.

In commercial contracts, an oral agreement made outside of the contract is both common and enforceable in court when this merger and integration clause is not inserted. In some instances, things said outside of a deal, whether to the press or to someone else, may cause the other party to rely on what was said, versus what was agreed upon in the contract. However, when a merger and integration clause is enforced, neither singular party can rely on what was said outside of the terms of the contract.

What both parties on either side of a deal don’t think about when making oral agreements (or side deals) is that it’s actually an element of fraud. The commercial contract itself is binding and therefore, you can avoid spending the time and money you would have spent giving depositions and in litigation based on what he said or what she said outside of the contract terms.

Disclaimers of Reliance

The clauses inserted into contracts are called disclaimers of reliance. The court will probably hold them to be valid when it is a contract among equal parties. For instance, if the two parties happen to be a car dealer and a customer, the court may not hold these disclaimers of reliance if the car dealer said something that wasn’t true.

The things a car dealer tells the customer can and likely will be held against the car dealer. This outcome might be different, if the two parties are equal, say if they were both car dealers. A court could reasonably say, you’re of two equal parties and you had to reasonably know that the other car dealer was lying when they told you those things.

Merger and Integration Clause Importance

The Merger and Integration Clause is important in commercial contracts because an individual could spend hundreds of thousands of dollars in litigation and be giving depositions, all over the “he said/she said” argument.

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