Friday, March 11, 2011

Incorporation By Reference

Many agreements include what are called “merger clauses” where the parties agree that all prior discussions have been merged into the agreement and the agreement represents the entire understanding between the parties. Further, under the rules of contract construction, the courts will only look to the “four corners” of the agreement to determine the intent of the parties. This means that if there are other documents, attachments, or exhibits that make up the agreement, those documents need to be “incorporated by reference” into the Agreement. 

Incorporation by reference is a method of making document become part of another document by stating in the original document that the other document is made part of the original document.
It is common drafting practice to incorporate by reference an existing writing into contracts, or other legal document in order to save space. To properly make them part of the Agreement they should be incorporated by reference within the body of the Agreement or within the body of another document that has been properly incorporated by reference into the Agreement.

Incorporation of a document by reference is done by stating the incorporation by reference in the body of the Agreement where the specific document is referred to, or incorporating those documents in listing of Attachments or exhibits within the Agreement.

For example:
Pricing is set forth in Attachment A, entitled “Product and Price List”, five (5) pages, dated January 2, 2011, which is incorporated by reference into this Agreement.

Section 11 Attachments and Exhibits.
The following Attachments and Exhibits are hereby incorporated by reference into this Agreement:                                                                                                          
Attachment A, entitled “Product and Price List”, 5 pages, dated January 2, 2002
Attachment B, entitled “Cancellation and Rescheduling Terms”, 1 page, dated January 2, 2002
Attachment C, entitled “Supplier Quality Agreement”, 5 pages, dated December 31, 2000
This Statement of Work adopts and incorporates by reference the terms and conditions of Agreement #_______) between Buyer and Supplier.                                                                                                           
The key thing you need to do is make it very clear exactly what document(s) you are incorporating by reference. To do that each document to be incorporated should have:
  • a name, title, or reference number.
  • a date, or formal revision number
This is so you know the exact version of the document that is included.

Exhibit 1 “Sample Return Material Authorization” form, 2 pages dated March 30, 2009.

If the document consists of multiple pages and not all pages need to be incorporated, you should list only the applicable page numbers being incorporated.

It is possible to incorporate the entire terms and conditions of another agreement to create a new agreement between different parties. This type of practice is frequently done in acquisitions and divestitures where you need to provide the company that’s buying the Business with agreements with existing suppliers and you can’t assign them because you need the agreements to be in place for other business with the Supplier.  I’ll discuss that in the topic called “adoption agreements”.

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