Thursday, October 11, 2012

Contracts. Miscellaneous provisions and the potential importance of the "integration clause"

In my practice I find that most agreements I review and negotiate incorporate all of the pertinent business related terms and then typically conclude with miscellaneous standard provisions.  In particular these standard provisions include clauses such as a choice of law provision, attorneys fees clause, and to a lesser extent, an arbitration clause. They are not hard to find-look to the end of the document and scan for the heading "Miscellaneous Provisions". 

The choice of law provision dictates which state law will apply to the interpretation of the agreement or to disputes. The attorneys fees provision provides that the prevailing party shall be awarded attorneys fees in the event of a dispute. A typical arbitration clause provides that the parties agree to waive their right to a judge or jury trial and instead agree to submit any disputes to a private neutral or neutrals. Though arbitration provisions persist in various areas of business and consumer transactions, they are less prevalent in modern business to business agreements.

Irrespective of the subject of the transaction, I typically incorporate an integration clause in my agreements. An integration clause provides that all discussions, representations and agreements made in advance of the final written agreement expressly are disclaimed.  Essentially, the clause means that if it's not in the written contract, it's not part of the agreement. Integration clauses are important when the parties employ sales people, have had protracted negotiations, negotiate through various representatives and where significant time has elapsed between the time essential terms were agreed upon and the time the agreement was reduced to writing.  Representatives of the parties may have made additional agreements that were not given the blessing of the authorized principal negotiators.  Conversely, if I'm representing a small business or individual in a negotiation with a larger entity who has the primary bargaining power, I tend to disfavor integration clauses.  I find that the more resourced party tends to control the terms of the agreement.  They do however usually make representations, clarifications and additional agreements in emails that ultimately are not included in the final agreement.  In that instance, I want my individual or small business client to be able to argue those clarifications in connection with interpreting the final agreement. 

I caution my clients against merely scanning the miscellaneous provisions and assuming they are standard and/or fair. In some cases, these provisions can govern significant disputes and may have a huge impact on the deal. I also caution any individual or small business that it is always better to have an attorney review your agreements before execution. As with many things, the relatively minor expense of legal review could save you thousands, or millions, later.

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