Contract Clause Entire Agreement: What You Need to Know
A contract clause entire agreement states that the contract represents a final agreement between two parties and that any prior agreements are now invalid.3 min read
A contract clause entire agreement, sometimes known as a merger clause, states that the contract represents a final agreement between two parties and that any prior agreements are now invalid.
What Are Entire Agreement Clauses
Contracts can include a variety of clauses, but one of the most common is an entire agreement clause. These clauses state that the contract is a complete agreement between the two parties, providing protection for both parties.
A contract that includes an entire agreement clause replaces any previous agreements that may exist between the two parties. When writing a contract, it is important to make clear that only the terms actually written in the contract are legally binding, and that there should be no expectation that the parties will be bound by the terms of either previous agreement. Using an entire agreement clause is the easiest way to indicate that prior agreements no longer hold validity.
Including an entire agreement clause in a contract prevents the parties from attempting to assert a provision of a prior agreement. Entire agreement clauses are a type of boilerplate provision, meaning most contracts contain them. The purpose of boilerplate provisions is to reduce the time needed to negotiate a contract.
An entire agreement clause can make it clear to both parties that the contract clearly defines their obligations, and they will not be bound to fulfill duties not specified in the written contracts. These clauses also prevent the parties from attempting to hold each other to statements or promises made before the writing and signing of the contract.
Entire agreement clauses exist in several types of business contracts:
- Employment Contracts: When included in an employment contract, an entire agreement clause prevents employees from requesting more money than the contract specifies.
- Franchise Contracts: Entire agreement clauses in franchise contracts make sure that neither the franchisor nor franchisee attempts to request more than what the contract promises.
- Sale of Goods Contract. Using an entire agreement clause in a sale of goods contract guarantees that both parties will abide by the contractual price and time of delivery.
Guidelines for an Entire Agreement Clause
If you're interested in including an entire agreement clause when writing a contract, there are a few basic guidelines that you should follow. First, you should be sure that you are placing the entire agreement clause near the end of the contract. Generally, this clause should be in the same section as the arbitration clause and the choice of law provision. Second, make sure to address the previous agreements that are now superseded by the new contract.
At its most basic, an entire agreement clause should state that the written contract represents the complete agreement between the parties. The clause should also state that the contract replaces any previous agreements between the parties. Most countries will enforce entire agreement clauses, so you can include these clauses in both domestic and international contracts.
When you're writing an entire agreement clause, you should be sure that the clause does not address misrepresentation. Entire agreement clauses are not enforceable when one or both of the parties have made misrepresentation while negotiating the contract.
Entire Agreement Clause Limitations
There are certain limitations to entire agreement clauses to consider before including one of these clauses in a contract. For example, these clauses do not prevent the parties from using extrinsic documents to better understand the contract. These documents can clarify the contract's meaning, but cannot establish a separate agreement between the parties.
There are four other important limitations of entire agreement clauses established by case law:
- Implied terms are not excluded from the contract.
- Misrepresentation can result in liability.
- Correction of mistakes is allowable.
- Both parties can invoke estoppel by convention.
Generally, implied terms are not allowed to be excluded by using an entire agreement clause. If one or both of the parties want to exclude implied terms, they will need to make sure that the contract includes an exclusion clause. While some courts have ruled that entire agreement clauses can exclude implied terms, it's best to add an exclusion clause just to be certain that these terms will not apply to the contract.
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