The ‘entire agreement’ clause: how to prevent past emails from haunting you

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Alexandra Radulescu

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Two things often indicate the importance of a contractual clause: (i) how frequently it is litigated; and (ii) how much the courts have to say about it. The ‘entire agreement’ clause is one that ticks both boxes, being often underestimated by the parties to a contract.

What does it look like?

An entire agreement clause will typically be drafted along the following lines:

“This agreement constitutes the entire agreement between the parties and supersedes and extinguishes all previous agreements, promises, assurances, warranties, representations and understandings between them, whether written or oral, relating to its subject matter.

Each party acknowledges that in entering into this agreement it does not rely on any statement, representation, assurance or warranty (whether made innocently or negligently) that is not set out in this agreement.

Each party agrees that it shall have no claim for innocent or negligent misrepresentation based on any statement in this agreement.”

Why should you care?

Imagine you start discussing a new project proposal, and in the very first meeting you mention a range of extra benefits that you could offer your client. The client does not comment on the benefits at all and three months later, you sign a project agreement and start delivering your services as planned. You assume you will not have to offer any of the benefits you mentioned initially, since those were neither further discussed nor included in the written agreement.

However, your client has other plans. They contact you halfway through the project asking why those benefits have not been delivered. You are surprised to hear about this and contact Chronos for help. You do not want to damage the client relationship, but those benefits would come at an additional expense to your business that the current agreement does not account for.

After reviewing your agreement, Chronos informs you that you have not included an ‘entire agreement’ clause and proceeds to explain that such a clause aims to prevent any claims based on statements that you made during negotiations that were not included in the final agreement. In its absence, any representation you have made to the other party (such as the benefits you offered to your client) may be enforced by the other party against you.

In your case, that means your client may have a valid claim for the benefits that you briefly mentioned in passing three months ago. Reluctantly, you decide to offer those benefits free of charge to your client, and finally understand there is a reason why ‘the devil is in the details’.

The exception proves the rule

Now that you know what an ‘entire agreement’ clause does, you need to know what it does not do.

To begin with, it does not prevent courts from applying general principles of contract interpretation such as considering the factual, legal or regulatory background (“context”) or looking at the commercial purpose of the contract (“business common sense”). Similarly, it does not exclude certain terms or duties from being implied into the contract: examples include taking into account the parties’ intention, or implying certain terms based on the fact that they are customary to a specific trade.

Moreover, within the clause itself, emphasis must be placed on the word: ‘previous’. An ‘entire agreement’ clause will only cover claims in relation to statements made before entering into a contract, to the exclusion of post-agreement representations. The list of exclusions goes on, and we would be happy to discuss these in greater detail with you.

Common drafting mistakes: this is not a case of ‘less is more’

Although one of the biggest mistakes is not to include an ‘entire agreement’ clause in the first place, there are several other ways things could go wrong.

One of them is to assume that a standard clause will always be enough: each template will need to be tailored to the relevant contract, for instance by referring to specific items that go beyond the general “agreements, promises, assurances, warranties, representations”. An example would be adding “project proposals” to the list, when relevant.

Another common oversight is failing to use express language to exclude liability for misrepresentation. Parties have tried to argue countless times that an ‘entire agreement’ clause is sufficient to exclude liability for untrue statements, and countless times such an argument was rejected by the courts. Instead, it was made clear that courts only expect one thing: clearer contractual language. To that end, lawyers have come up with a number of drafting solutions such as non-reliance or no representation statements, and other legal jargon that Chronos would be happy to simplify for you.

Moral of the story? Close loopholes, prevent disputes

The world of contracts can be a dark and sometimes confusing place, and in this case anything you don’t say can be used against you. This is why having key clauses in place such as the one discussed above becomes critical to prevent future claims and the series of headaches that surely follow.

Yet, the ‘entire agreement’ clause, although crucial, is merely one of the many contractual safeguards one should adopt. The Boilerplate 101 series is here to help you decipher the rest.

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