Entire Contract Clause: Everything You Need to Know
An entire contract clause is a clause that indicates that every part of the agreement between the two parties can be found in the contract.3 min read
An entire contract clause is a clause that indicates that every part of the agreement between the two parties can be found in the contract.
Introduction to Entire Contract Clause
Frequently, there are questions whether entire contract causes are as effective as they may seem. This is especially true when a long-term contract has resulted in a dispute. Some of these contracts include:
- Long-term supply agreements
- Joint ventures
- Long-term financing agreements
With these long-term contracts, disputes usually occur because there is a disagreement about what the agreement actually means or when one of the parties is attempting to apply outside meaning to the contract. An entire contract clause will usually be categorized as a boilerplate clause.
In most cases, boilerplate causes are added to contracts as a matter of course, and almost never result in controversy. Because these causes are so standard, they aren't negotiated as strictly as commercial contract terms.
What Are Entire Contract Clauses?
Entire contract clauses are usually found in insurance contracts and are used to state that the terms agreed to be the insured and the insurance company can be found in the contract. With an entire agreement clause, the agreement is restricted to what is described in the contract terms. This clause is used to alert all parties in the contract that they are not bound by provisions outside the contract, only by the contract itself.
Commercial contracts will typically include an entire contract clause in the section meant for standard clauses. The nature of the dispute between the parties will determine whether these clauses will be avoided or enforced. One of the main purposes of an entire contract clause is to prevent one of the parties to claim that statements made while the contract was being negotiated should be enforced. With this clause in place, only the written and signed contract is enforceable.
This is also done to make sure that both parties are aware of the performance that is required of them by the contract.
When a lawsuit occurs, the presence of an entire contract clause can be very important. For instance, imagine that the insured party decides to sue the insurer based on a statement or provision that is not actually in the contract. Thanks to the entire contract clause, the insurance company would have a strong chance of winning the lawsuit and avoiding damages.
When an insurance policy contract contains an entire contract clause, it will also usually include several other details:
What Are the Elements of an Entire Contract Clause?
There are several elements that you will typically find in an entire contract clause. First and foremost, there will be something known as an entire agreement statement. This statement indicates that the parties listed in the contract have agreed to be bound by the terms found in the contract and that no outside provisions will provide.
Entire contract clauses will also include an exclusion of liability for misrepresentation, which will generally take one of three forms:
- Both parties acknowledge that they are not relying on non-contractual representation.
- A statement that excludes liability based on misrepresentation.
- A statement that restricts that actions that can be taken for misrepresentation should the contract be breached.
Entire contract cause may also have a carve-out for cases involving fraud. This means that the entire contract clause needs to include a statement that says the clause will not exclude liability for misrepresentation when this misrepresentation was fraudulent. Not every entire contract clause will include this carve-out.
What to Avoid in an Entire Contract Clause
There are also several things that should be avoided when adding an entire contract clause. First, if there are attachments or schedules in the contract, the clause needs to include these items in its definition. If the transaction involved multiple contracts, every contract must be included in the entire contract clause. Failure to do so may reduce the legal protections provided to both parties, and could easily result in a dispute based on pre-contract statements.
What Do Entire Contract Clauses Do?
Depending on how it is written, an entire contract clause can be used for several purposes:
- Document that the terms that two parties have agreed to have been recorded in a written contract and that the parties will only be bound by these terms.
- Prevent the use of a term that isn't expressly stated in the contract.
- Stop parties from claiming that a misrepresentation caused them to enter into the contract.
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