Contract law (2022): Contract interpretation: Integration clause + Contra proferentem

 In contract law, an integration clause, merger clause, (sometimes, particularly in the United Kingdom, referred to as an entire agreement clause)  is a clause in a written contract which declares that contract to be the complete and final agreement between the parties. It is often placed at or towards the end of the contract. Any pre-contractual material which the parties wish to be incorporated into the contract need to be assembled with it or explicitly referred to in the contractual documentation.

Effect.

A contract that has such a clause may be deemed an integrated contract, and any previous negotiations in which the parties to the contract had considered different terms will be deemed superseded by the final writing. However, many modern cases have found merger clauses to be only a rebuttable presumption.

In the United States, the existence of such a term is normally not conclusive proof that no varied or additional conditions exist with respect to the performance of the contract beyond those that are in the writing but instead is simply evidence of that fact.

In Personnel Hygiene Services Ltd v Mitchell, an England and Wales Court of Appeal case where there were two distinct contractual relationships between the parties, a service agreement superseded by a compromise agreement, and a separate share purchase agreement, it was held that the entire agreement provisions in the compromise agreement annulled the service agreement but the share purchase agreement remained intact.

Contra proferentem (Latin: "against  offeror"), also known as "interpretation against the draftsman", is a doctrine of contractual interpretation providing that, where a promise, agreement or term is ambiguous, the preferred meaning should be the one that works against the interests of the party who provided the wording.

Overview.

The doctrine is often applied to situations involving standardized contracts or where the parties are of unequal bargaining power, but is applicable to other cases. The doctrine is not, however, directly applicable to situations where the language at issue is mandated by law, as is often the case with insurance contracts and bills of lading.

The reasoning behind this rule is to encourage the drafter of a contract to be as clear and explicit as possible and to take into account as many foreseeable situations as it can. Eric Posner claimed: "The contra proferentem rule, for example, might encourage the drafter to be more explicit and to provide more details about obligations. This may reduce the chance that the other party will misunderstand the contract; it also may facilitate judicial interpretation of the contract.” Uri Weiss claimed: "The Contra Proferentem rule motivates the less risk-averse drafter to refrain from manipulating the other side by making the contract unclear. Thus, the two parties can agree that the less risk-averse side will formulate the contract, thus reducing the cost of the transaction. Without this rule, there might be a moral hazard problem".