Most written contracts include an integration clause, which is a clause that provides that all prior or contemporaneous negotiations merge into the executed contract. An integration clause prevents the imposition of provisions which were previously discussed but not included in the final contract. This clause, however, may not preclude the consideration of all prior or contemporaneous negotiations between the parties, as a recent Illinois case, Midwest Builder Distributing, Inc. v. Lord and Essex, Inc., demonstrates.
Midwest Builder Distributing, Inc. (“Midwest”) sought to collect amounts due for building materials supplied to Lord and Essex, Inc. (“Lord”). Midwest obtained a judgment against Lord for the amounts due for the materials, plus attorneys’ fees and costs, pursuant to a credit information sheet executed by Lord. Lord appealed, arguing Midwest could not recover its attorneys’ fees and costs because subsequent subcontract agreements executed by the parties did not allow for the recovery of the same and contained an integration clause stating all prior and contemporaneous negotiations between the parties merged into the subcontracts.
In finding the subcontract’s integration clause did not prevent Midwest from collecting its attorneys’ fees and costs, the court stated that a contract is integrated when the parties intend it to be a final and complete expression of the agreements between them. “The effect of integration is to preclude evidence of understandings, not reflected in writing, reached before or at the time of its execution which would vary or modify its terms.” Thus, the integration clause in the subcontractor agreements was intended to override any other prior or contemporaneous understandings, including the terms in the credit information sheet.
The court noted, however, that “even if a contract is integrated, the scope of integration does not extend infinitely to any and all dealings that might have occurred between the parties. Evidence of an extrinsic agreement may be admissible if it is . . . a separate and distinct matter . . . capable of existence as an independent legal act.” Accordingly, evidence of a prior agreement may be considered if it is not inconsistent with the primary agreement.
The court thus held that Midwest could collect its attorneys’ fees and costs, concluding as follows:
There is no text in the subcontractor agreements that deals with omission of remedies or purports to clash or overlap with the remedies provided under the credit information sheet. Nor is there relevant testimony that would tend to show that the documents were drafted deliberately to avoid mention of them. Hence we find that the subcontractor agreements do not extend to the issue of remedies. The provisions in the credit information sheet for interest, court costs, and attorney fees in the event that Midwest pursues collection by suit are not subsumed by the subcontractor agreements, but are enforceable as consistent terms of an independent agreement . . .
If you have a question about the scope of an integration clause, please telephone a member of the firm.