By Chris Balch
You have been negotiating this deal for weeks. This is a great opportunity and you are anxious to get the purchase closed. You and the seller have haggled over every term, every issue, and every comma (or so it seems). You are finally ready to close the deal and suddenly you notice a term in the agreement that you hadn’t paid attention to before. It is titled “Merger Clause,” and says something to the effect that “All terms of this agreement are present in this written document. No representation, warranty, promise or inducement not included in the contract shall be binding on any party hereto.”
Wait. What?
There are several promises and representations the seller has made that are not in the contract. You and she agreed they would be excluded because they were resolved late in the dialogue, and there had been too much money spent on lawyer time drafting the agreement already. These representations cover the presence of certain long-term contracts and covenants not to compete signed with key employees. All of a sudden, leaving those terms outside the agreement does not seem like a good idea, lawyer fees or no.
Your intuition is accurate and your desire to understand the agreement significant. Parties often seek to wrap their discussions and negotiations into one final document to remove loose ends and related problems. To accomplish this, the agreement will include a merger clause, which provides that all terms of the deal are in the written document and nothing outside the document can be used to alter or amend it.
Last March the Georgia Court of Appeals decided Peck v. Lanier Golf Club, Inc., Case No. A11A2100 (March 8, 2012). In that case, Mr. Peck had purchased a lot adjacent to the Lanier Golf Club. When the golf course closed in 2007, he sued claiming he was entitled to have the course open in perpetuity because of representations made which induced him to make his purchase. The contract for the purchase of his home provided that no statements or representations not contained in the agreement were part of the contract. In dismissing his claims, the court held, “The entire agreement clause (another name for the merger clause described above) operates as a disclaimer, establishing that the written agreement completely and comprehensively represents all the parties’ agreement.”
Are all of the terms of your agreement written down? Shouldn’t they be?
Chris Balch is a lawyer and a member of the Board of Directors for SEABA. He can be reached at chris@balchlawgroup.com. This article is for informational purposes only. No legal advice is intended. Every situation is different and general rules may not apply to yours.
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