Complete Integration Or Not?- What happens when there is an entire agreement clause in a written agreement, and there is other evidence that the parties did not intend the agreement to be the complete and exclusive statement of their obligations?

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Hypothetical: Back to the Sowle / McCartney Example - Consider this variation of the Sowle / McCartney example.

As before, they enter a written agreement under which McCartney will supply 1000 pairs of rubber soles to Sowle, and, as before, the agreement contains this clause: “Entire agreement: This contract represents the entire agreement of the parties.”

However, this time, when they meet to sign the written contract, Sowle says, “I forgot to specify that the soles should not be smaller than a size 7. Can we agree on that?” McCartney says, “No problem. You had mentioned that you wanted nothing smaller than size 7, so I planned on that already. I don’t know how that did not get in the agreement, but I will agree right now to that.”

Question - Which of the following statements is correct?

(a) The entire-agreement clause is evidence that the written agreement is a complete integration, i. e., that the parties intend it to be the complete and exclusive statement of the terms of their agreement.

(b) The “size 7” conversation is evidence that the written agreement is not a complete integration, i. e., that the parties do not intend it to be the complete and exclusive statement of the terms of their agreement.

(c) (a) and (b).

Answer and Analysis - The correct answer is (c), the entire agreement clause is evidence in favor of a complete integration and the conversation evidence against a complete integration.

But which evidence is stronger – the entire agreement clause, which is evidence in favor of the complete integration, or the conversational evidence, which is evidence against the complete integration? It depends.

Jurisdictions vary in how much evidential weight they give to an entire-agreement clause. In all jurisdictions, it is evidence of a complete integration. In some jurisdictions, the entire-agreement clause is very strong evidence; in others, it is less strong.

So it is possible that a court in a “very strong evidence” jurisdiction might hold that, despite the “size 7” conversation, the written agreement is a complete integration.

Rationale - To see why, recall the two policy goals and consider the effects, as summarized below, of giving less weight or strong weight to the entire-agreement clause:

Recall the two policy goals:

(1) giving significant weight to written contracts as a basis for business planning and dispute resolution; and,

(2) enforcing agreements that the parties intended to be enforceable.

A court that favors (1) can realize that goal by holding that an entire agreement clause is very strong evidence of a complete integration. This ensures any side agreement in the scope of the complete integration is unenforceable.

Policy Tradeoffs in Determining Complete Integrations - The more evidential weight you give to the entire agreement clause, the easier you make it to hold that a written agreement is a complete integration, with the result that side agreements in the scope of the complete integration are unenforceable. Taking this approach helps ensure that written contracts are a reliable basis for business planning and dispute resolution.

The less evidential weight you give to the entire agreement clause, the harder you make it to hold that a written agreement is a complete integration, with the result that side agreements will be enforceable just as long as they do not contradict the written agreement. Taking this approach helps ensure that we enforce the agreements the parties actually intend to be enforceable.

Enforcing the Side Agreement Anyway - With regard to the Sowle / McCartney example, we noted earlier that a court in a “very strong evidence” jurisdiction might hold that the written agreement is a complete integration, despite the “size 7” conversation, which demonstrates that the parties intended the oral agreement to be enforceable.

True or False - A court that wished to hold that that the written contract was a complete integration could still hold that the oral agreement was enforceable.

Answer - The correct answer is “true,” all the court has to do is hold that the oral agreement falls outside the scope of the complete integration. It is possible to do so under the normal inclusion test for scope (see tutorial 3).

Contradiction - The first question to ask in applying The Parol Evidence Rule is, “Does the side agreement contradiction the written agreement?” (Our tutorials on The Parol Evidence Rule include a comprehensive flow chart of The Parol Evidence Rule. You may find that flow chart helpful in understanding and applying The Parol Evidence Rule.)

Determining whether a contradiction exists can also involve the tradeoff between (1) giving significant weight to written contracts as a basis for business planning and dispute resolution; and, (2) enforcing agreements that the parties intended to be enforceable.

We take up this issue in our next post on The Parol Evidence Rule.

The Law School Experience - These and related topics are covered in our tutorials on Contract Law.

To explore some of our free materials, go to The Law School Experience.