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• Oftentimes, business clients are focused on the business terms of commercial contracts and overlook the “boilerplate” provisions of the contract, such as forum selection clauses and integration clauses.
• However, these provisions are necessary, important, and require careful consideration from counsel and clients alike.
• Ensuring that your carefully negotiated commercial contract is shielded from attack, by way of a carefully constructed “integration” or “merger” clause, from the “fraud in the inducement” exception to the parol evidence rule, is worthy of careful consideration and drafting strategy.
• Though historically looked upon with disfavor, in 1972 the U.S. Supreme Court decided M/S Bremen v. Zapata Offshore Co., setting forth what has become the standard for enforcing forum selection clauses.
• Now, in most jurisdictions, forum selection clauses are “prima facie valid.”
• You are a N.C. business • Just negotiated an important agreement to supply
component parts to an end use in California.• The economic terms are favorable to you• There is no forum selection clause in the supply
agreement• The post-closing “warm and fuzzies” have gone• A dispute arises• You try to negotiate away the dispute• Your customer sues you preemptively to secure
home court advantage• Imagine that the customer is from a foreign country
• North Carolina is an outlier when it comes to contracts with forum selection provisions. N.C.G.S. § 22B-3 provides:
• Except as otherwise provided in this section, any provision in an contract entered into in North Carolina that requires this prosecution of any action or the arbitration of any dispute that arises from the contract to be instituted or heard in another state is against public policy and is void and unenforceable. This prohibition shall not apply to non-consumer loan transactions or to any action or arbitration of a dispute that is commenced in another state pursuant to a forum selection provision with the consent of all parties to the contract at the time the dispute arises.
• Make it Mandatory• Scope of the Forum Selection Clause• Make Sure it is Enforceable• State versus Federal Court• Make Sure the selected Forum has Personal
Jurisdiction• Choice of Law versus Choice of Forum• Multiple Agreements
• While there may not be a perfect forum to litigate every dispute, there is no question that the wrong decision every time is to ignore the forum selection clause!
• Not so fast! Generally the parol evidence rule will prohibit courts from considering extrinsic evidence for the purpose of varying, contradicting or adding to the terms of a written agreement.
• However, an exception to the parol evidence rule applies in the case of fraud in the inducement – where one party claims to have been “induced” by fraudulent representations to enter into a contract, even in the face of an integration agreement.
• To the consternation of those wishing to rely on an integration clause, a majority of our courts, when there is an allegation of fraud in the inducement, will allow extrinsic evidence of the alleged fraud rather than strictly enforcing the integration clause.
• Though the majority of our Courts do apply the fraud in the inducement exception to the parol evidence rule, all is not lost.
• Careful drafting can increase the odds that the Court may not choose to apply the exception, or make it such that someone relying on the exception is simply not believable.
• Consider drafting Waiver of Reliance Provisions• Draft a complete integration clause• Indicate that both parties participated in the
drafting, review, or creation of the agreement.• Indicate that the agreement is the sole expression
of the parties’ intent.• Draft that each party has had the opportunity to
read and review the agreement before signing it and in doing so, did not rely on any representations of the other party or, in the alternative, that any failure to review the agreement before signing it precludes any claim that it does not represent the true agreement of the parties.
• In order to avoid litigation heartache, or at least to minimize it, you should carefully consider the forum selection clause and the integration clause when drafting commercial contracts.
• Paying them short shrift may reduce the short term cost, but in the event of litigation, it may ultimately cost you a client.