May 21, 2020

Effective Use of Merger Clauses: Part II

Jason R. Scheiderer and Michael Malone – June 13, 2018

Note: In the first installment of this series, we discussed the history of the parol evidence rule and the use of merger clauses. Here, we discuss the legal effect of merger clauses and various jurisdictions’ approaches to them.

Once parties write a merger clause into their agreement, what weight should that provision have? Should merger clauses be given more weight when they are negotiated between two sophisticated businesses, both represented by counsel? Should merger clauses be given less weight when they are “boilerplate” or “stock” clauses preprinted on contracts, particularly consumer contracts?  Conversely, why should merger clauses be given any less weight than any other term of the contract?

Posing these questions raises another important question.  What evidence should a court consider when evaluating how well or how thoroughly a contract was negotiated? What evidence should a court consider when evaluating the respective bargaining power of the parties?  All of this evidence is extrinsic to the contract.  When the parties have prepared and executed a merger clause, isn’t the mere consideration of these issues directly contrary to the express intent of the parties? Courts and scholars have taken different approaches to answering these types of questions. Since opinions continue to be written every day (and since related courts have shown some striking inconsistencies), the practitioner should carefully study the nuances in the authority governing the particular contract. But it is helpful to identify the three primary approaches courts currently take when considering the enforcement of a merger clause. We identify them as the “conclusive approach, the “highly persuasive” approach, and the “mere factor” approach.

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