When negotiating an agreement, parties sometimes make verbal or written commitments that are not recorded in the final, written contract. Confusion and disagreement can arise when parties disagree over whether prior or contemporaneous commitments are part of a final deal between the parties.
To avoid such confusion, contracts often include boilerplate language called an “integration clause.” Integration clauses state that a contract contains the final and entire agreement between the parties. Under the “parol evidence rule,” a court enforces integration clauses by refusing to consider evidence of terms and conditions that are not included in a contract that is “integrated.” A recent Massachusetts Appeals Court decision illustrates how an integration clause can protect or injure your interests, depending on your perspective.
In Realty Finance Holdings, LLC v. KS Shiraz Manager, LLC, & Others, the parties signed agreements that contained integration clauses. Realty Finance Holdings, LLC v. KS Shiraz Manager, LLC, Mass. App. Ct., No. 13-P-252, slip. op. (Sept. 5, 2014). The defendants argued that the agreements were subject to financing-related contingencies that were not included in the signed agreements. These defendants claimed that since the contingencies were not met, they were not obligated to pay the plaintiff. The plaintiff pointed to the integration clause as evidence that no other conditions were part of the final deal.
The court in this case enforced the integration clause, reasoning that the parties were “sophisticated business people, represented by counsel, [who had] negotiated and executed a complex written document touching on all significant aspects of their transaction.” Id. at 11. The defendants (and their legal counsel) should have made sure that all of their conditions were included in the written agreement. “While the defendants may have intended that the executed amended agreements not take effect upon delivery, it is well-established that the unexpressed intent of one party cannot control the legal effect of the parties’ written agreement and explicit integration clause.” Id. at 15 (internal citations omitted).
However, integration clauses are not always enforced. The court in Realty Finance Holdings acknowledged that courts may look to external evidence in situations where “the writing is brief or boilerplate, or where the parties are mismatched [e.g. in bargaining power or experience].” Id. at 13.
Integration clauses require parties to be careful, and to make sure that all of their desired terms and conditions are included in the signed agreement. Having good legal counsel as you negotiate, draft, or sign a contract can save you future time, money, and frustration. If you have questions about a contract or written agreement, call the attorneys at Hutchins Law, P.C today!