Entire Agreement Clause: Everything You Need to Know
An entire agreement clause is used to clearly state that the terms two parties have agreed to are only the terms contained in the contract.3 min read
2. Basics of Entire Agreement Clauses
An entire agreement clause is used to clearly state that the terms two parties have agreed to are only the terms contained in the contract, meaning they are not bound by pre-contract statements.
Introduction to Entire Agreement Clauses
Entire agreement clauses are included in most long-term contracts, including supply agreements and joint ventures. However, when the parties listed in the contract come into dispute, there is some question about whether these clauses are actually effective. The biggest disagreements involve one party looking outside of the contract to help understand the terms of the agreement. Most contracts with included clauses use standard wording. These are known as boilerplate clauses.
Because boilerplate clauses are so routine, they usually won't lead to disputes and may not have even been negotiated before being inserted in the contract.
Basics of Entire Agreement Clauses
An entire agreement clause is one of the most common boilerplate clauses. These clauses can also be referred to as a merger clause or integration clause. Integration is an important part of contract law. Common law rules support entire agreement clauses that are added to integrated agreements.
An integrated agreement is best understood as the final contract between two parties, meaning terms have been fully negotiated and accepted. The foundation of contract law is the freedom of parties to contract with each other, and courts typically take into account the intentions of the parties who have agreed to a contract. When a dispute arises from a contract, the court's main goal is to decide what terms were intended to be added to the contract and what responsibilities were assigned to each party. Essentially, the court will determine if the contract is complete.
Entire agreement clauses are meant to show that the only terms that the parties have agreed to are those that are listed in the contract. In addition, this clause is meant to stop one party from making a claim that statements brought up during negotiations that didn't make it into the written contract should be considered as a side agreement.
Without an agreement clause, one or both parties could claim that non-contractual terms must be fulfilled simply because they were discussed while the agreement was being negotiated. While entire agreement clauses are usually effective, they are subject to certain limitations.
First, these clauses do not eliminate the ability for contracted parties to rely on extrinsic documents or statements. These documents and statements are meant to help with an understanding of the contract but cannot be claimed to count as a second contract.
In addition to the limitation related to extrinsic statements and documents, there are four other limitations that apply to these agreements:
- Terms that have been implied will not be excluded.
- Liability for misrepresentation applies.
- Parties have the opportunities to correct mistakes.
- It is possible to invoke estoppel by convention.
There are several types of business contract where you will likely find an entire agreement clause:
- Employment contracts.
- Franchise contracts.
- Sale of goods contracts.
In certain transactions, it is possible that multiple contracts will be used. In these circumstances, the entire agreement clause must list every contract for the clause to be legally binding. You should understand that misrepresentation is not covered by the entire agreement clause. Entire agreement clauses are also not applicable in cases where either party is acting in bad faith.
In real estate, for example, disclosure laws require that the seller disclose everything to the buyer. If the seller fails to meet this requirement, the buyer can make a claim. It is possible for contracts to be written where the buyer accepts everything in its current state, meaning they would not have the ability to claim misrepresentation. An entire agreement clause is an indication that the agreement between two parties is complete. Because of this, it's important that the language of the clause is strong and proves to courts that there is an integrated agreement.
While the existence of an entire agreement clause is relevant when there is a dispute between two contracted parties, courts will generally not view these clauses as conclusive evidence. The Unfair Contract Terms Act 1977 requires that the language of these clauses be reasonable. For example, when used in commercial contracts, an entire agreement clause that eliminates liability for representations made before the contract was signed would not be reasonable.
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