Thursday, April 10, 2014

Multiple Documents – Does a later writing constitute a merger of documents?

In a discussion that I participated in an individual asked a question about when a contract starts. The problem in a bid some conditions were included. There was a letter of authorization based upon the bid. In a subsequent contract those bid conditions were missing. As this discussion included a number of issues I thought I would post my response here.

What is the starting point of the contract. That issue will depend upon the LOA. If it has language making a firm commitment where it is accepting a clear offer of the other party to enter into an agreement. That creates a contract.

If the Bid form used to solicit the bid that is being accepted included specific terms, and the bid conditions conflicted with those, the two documents would be read together along with the letter of authorization. The general rule in contracts is later writings in time have priority over prior documents. If the party that wrote the letter of authorization didn’t address the conflict, they were accepting the bid documents as modified by the supplier’s offer. If the LOA objected to the suppliers terms, no agreement would be formed as the letter would constitute a counter offer that needed to be accepted by the bidder

The date the LOA is signed would be the starting date of the contract, unless something to the contrary is specifically included in the LOA. When you sign a contract after making a commitment under the LOA, normally what would be done is you would incorporate the LOA by reference into the agreement and the effective date of the agreement should be retroactive back to the date of the LOA.

The second issue is what happens if the two are different where something included in the LOA does not get included in the contract. If you failed to incorporate the LOA by reference into the agreement or include what was covered by the LOA in the agreement, once again the general rule is the latest writing in time has priority in the event of a conflict. That means that the contract would have priority. As priority is applied only when there are conflicts, the later writing in time (the Contract) does not exclude non-conflicting language.

If this question applied to the U.S. and was governed by the UCC, the UCC does not make a presumption that the mere signing of the later agreement presumes the intent of the parties for it to be the final and complete expression of the parties. Instead, the UCC makes it clear that both parties must evidence their intent for it to be the final and complete expression of both parties. I believe that in the U.S. even though the UCC does not apply to all contracts, courts would follow that same rationale.

For it to show that the parties intend the new agreement to represent the final agreement of the parties, my opinion is you would need to have merger language in the new agreement specifically to that effect. An example of merger language is “This Agreement replaces any prior oral or written agreements or other communication between the parties with respect to the subject matter of this Agreement.” In the situation being discussed there wasn’t any merger language.

Without a merger clause what you wind up having is two legal documents that are both in effect as they have not been merged into one. Those two documents would need to be read together to determine the scope of the agreement. The contract being the later writing in time
has priority in the event of a conflict. If the omitted conditions conflicted with the terms of the contract, the terms of contract would prevail. If there is no conflict between the omitted item and the terms of the later contract, the two documents would be read together and those non-conflicting conditions would be part of the agreement.

If you have multiple documents always be cautious in reviewing that later document for two reasons. The first as I pointed out here they can potentially exclude or have priority over what was previously agreed. Second always be cautious in writing contract amendments. Contract amendments are later writings in time and will have priority over the contract. Make sure those amendments properly reflect your intent in making the amendment. If the intent of the amendment only applies to one situation, make it clear in the amendment that it only applies to that situation. Otherwise you will be amending it for the entire contract.