Sometimes the boring standard provisions in the back of a contract can really be brutal.
Take this scenario, for example:
- Your company books a trip on a cruise ship and signs a contract to charter the ship.
- It’s the spring of 2001 and you have the foresight to obtain verbal assurances and a letter from the cruise company stating that in the event of war or an act of terrorism, it will work with you to reschedule the trip or refund your prepayment.
- The terrorist attacks on the World Trade Center occur three weeks before your scheduled cruise, and the U.S. State Department issues a warning discouraging travel abroad.
- Your employees and guests begin to cancel out of fear for their safety, and you ask the cruise company to work with you to reschedule the cruise or refund some of the prepayment.
- The company refuses, so you cancel the trip and sue for a refund of part of your prepayment.
Should the court force the cruise company to refund your prepayment?
What Is an Integration Clause?
If the contract contains what is known as an integration clause, or a complete agreement clause, you might be out of luck. Certainly, that was the case in Sub-Zero Freezer Co. v. Cunard Line, which involved the facts I just described.
The purpose of the integration clause is to allow contracting parties to memorialize all of their negotiations and communications in a single contract. Toward that purpose, the typical integration clause states that the contract is the complete agreement of the parties and disclaims the effect of earlier written and oral understandings.
Integration Clauses Can Be Your Friend
Integration clauses are a useful way to tidy up the mess that is typical of contract negotiations. A fully-negotiated contract might involve numerous telephone conversations between the parties as well as many, many emails and other written communications. Being able to wrap all that up in a single document that the parties can put in their files is helpful.
But what if the other side to a contract were to use an email sent early in the negotiations to try to convince a court that you had agreed to something that you in fact hadn’t? Would you want the court to make you prove that you had won the point during negotiations and that the other side had given in? It would be less complicated if the court looked only at the final contract and refused to consider the email. That’s where integration clauses can be useful. They say, “Judge, we worked out all the issues and captured the entire deal in this contract. You don’t need to waste your time looking at all the stuff from our negotiations.”
When courts don’t have to take into account all the verbal and written communications from negotiations as evidence, the case is simpler and less expensive. Litigation can be expensive and time-consuming under the best of circumstances, and forcing the parties and the courts to focus on a single contract document can help keep costs from mushrooming.
Integration Clauses Can Be Your Enemy
Integration clauses are beneficial, but only if the contract actually is the entire agreement. If there’s something in the contract that you’re uncomfortable with, but you agree to sign the document anyway because of assurances from the other party, an integration clause could keep a court from even considering those assurances. That’s apparently what happened in the Sub-Zero Freezer case.
That boring stuff in the back of a contract has real meaning. An integration clause can give you certainty that the provisions in a final written contract will be enforced in the event of a dispute, but they could also keep you from relying on assurances from the other side that you consider to be an important part of the deal.