Merging Your Way Into Malpractice


It has been said that he who laughs last laughs the loudest. It is perhaps equally true in the law that the document that speaks last, speaks the loudest. This is most true in a contractual / transactional setting where the “deal” may be documented through a series of related transactional agreements. Typical situations which involve a progression of documents related to the same transaction include employment related agreements, which may include an employment agreement and separate agreements such as covenants not to compete, and real estate transactions, which begin with a contract of sale and end in an instrument of conveyance. An important consideration in all transactional settings these days is whether to include a mandatory arbitration provision which would require the submission of future disputes into arbitration, rather than submitting them to the risk and vagaries of trial court litigation. Most sellers / employers would probably prefer the arbitration route over the litigation route and would look for their counsel to make sure they are adequately protected in this regard.


Here is where it can get sticky for the drafting attorney. The doctrine of merger provides that all prior agreements, documents, understandings, etc. (whether oral or written) are merged or combined into the final agreement, such that only the language in the final agreement survives. In fact, most written contracts contain a Merger or Entireties Clause similar to the following:


Entire Agreement: This Agreement represents the final agreements between the parties and all other agreements, understandings (whether oral or written) are superseded by this Agreement and such prior agreements are no longer valid and are void.


What happens, though, when the “final” agreement contains an arbitration clause, but the “final, final” agreement does not? The recent South Carolina Supreme Court decision in Davis v. KB Home of South Carolina, Inc. is instructive on this important issue. In Davis, the employee had filled out an application for employment which clearly provided that any future disputes related to the employment would be subject to mandatory arbitration. A later executed employment agreement, however, failed to capture the same intent. Our Supreme Court held that the arbitration clause in the application of employment was no longer enforceable because the later employment agreement did not contain an arbitration provision and was “merged” into the employment agreement by the Merger Clause or Entireties Clause. Therefore, the employee could not be compelled to arbitrate his employment claims and was permitted instead to sue in court.


It is easy to speculate that the employer was less than pleased with this result. Whether the result is the by-product of malpractice is an entirely separate issue. The case should serve as fair warning to lawyers in transactional settings. The merger doctrine is alive and well in South Carolina. Drafting counsel should be careful to include language in all transactional documents to ensure that they read together and that they perform harmoniously. This is true not simply for contract documents that are executed together, but also for amendments which seek to alter or modify earlier terms. If the last document does in fact speak the loudest, you don’t want it to say that the lawyer inadvertently giving away valuable rights.


Eric Bland and Ronnie Richter