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What does the entire contract clause really mean?
What’s essential to know about it?
In this article, I will break down the meaning of the Entire Agreement Clause so you know all there is to know about it!
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What Is The Entire Agreement Clause
An entire agreement clause is a contractual provision where the parties recognize that the content of the agreement they are signing contains the expression of the entire agreement between them.
In other words, when you include an entire clause provision, you’re essentially saying that this contract will be the only legal document governing the agreement in question superseding all prior understandings, representations, undertakings, or agreements.
The main objective of the entire agreement provision is to ensure that the parties are not simultaneously bound by different contracts relating to the same business transaction.
The entire contract clause is generally considered to be a boilerplate clause found in most contracts.
You’re likely to find entire agreement clauses in many different types of commercial contracts such as:
- Employment contracts
- Franchise agreements
- Sale contract
- Insurance policies
- Service agreements
- Real estate contracts
- Lease agreements
Entire Agreement Clause Definition
How you do define an entire agreement clause.
The entire contract provision definition can be presented as follows:
An entire agreement clause is a contractual provision where the contracting parties state that the current contract supersedes previous any prior contracts related to the same object or transaction
To avoid having multiple contracts governing the same transaction, the entire agreement clause allows the parties to consolidate their business transaction into one single contract.
As a result, the “entire agreement clause” will prevent the contracting parties claim that a past contract controls or that a prior agreement takes precedence over the existing contract.
Purpose of Entire Contract Clause
Fundamentally, the purpose of the entire contract clause is to reduce the likelihood of dispute between the contracting parties in the event they may have had multiple agreements or understandings regarding a particular transaction or business dealing.
For example, imagine that Mary asks if John can deliver 1,000 components to her at $25 per unit and John had verbally agreed with the understanding that they’ll need to finalize everything by signing a written contract.
By the time the parties get to draft a written contract, the price of the units increases in the market forcing John to increase his price to $35 per unit which Mary agrees.
In this case, the entire agreement provision in their contract will ensure that the parties have agreed on the purchase and delivery of 1,000 units at $35 per unit (and not $25 per unit as it was initially agreed).
By signing the contract, Mary and John will reduce the possibility of conflict between them by ensuring that the contract stipulates the full and entire agreement between them on the transaction in question.
Limitations of Entire Agreement Provisions
Although the main purpose of the entire agreement provision is to reduce conflict between the parties and ensure that their agreement is expressed within the four corners of the one single contract, there are some limitations that you should consider.
Keep in mind that every jurisdiction may have specific rules applicable to the interpretation and enforcement of entire agreement provisions.
However, in the United States, you should generally consider the following limitations of the “entire agreement clause”:
- It does not prevent the parties from relying on statements or documents that are extrinsic to the contract
- You cannot exclude implied terms
- You cannot exclude liability for misrepresentation
- Mistakes can be rectified
- Estoppel by convention can still be invoked
Entire Agreement Clause Sample
To better understand the entire contract provision, let’s look at a sample to see how it’s formulated.
This Agreement represents the full understanding and entire agreement in respect to the subject matter between the parties hereto and there are no other representations and/or agreements, oral or written between the parties hereto in respect to the subject matter, and that this Agreement may not be modified without an agreement in writing signed by all the parties hereto.
The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and the Optionee. This Option Agreement shall be governed by the internal substantive laws, but not the choice of law rules, of the State of Ohio.
The Principal Agreement, the other Security Documents, and this Agreement represent the entire agreement among the parties hereto with respect to the subject matter hereof and supersede any prior expressions of intent or understanding with respect to this transaction and may be amended only by an instrument in writing executed by the parties to be bound or burdened thereby.
Entire Agreement Clause FAQ
Let’s look at a few common questions relating to entire agreement clauses found in contracts.
Why include an entire agreement clause in a contract
In most cases, the entire agreement clause is presented as one of the boilerplate clauses in most contract templates.
The main reason you will want to include an entire agreement clause in your contract is to ensure that you do not risk having different agreements, contracts, or understandings supersede your current contract terms.
Are entire agreement clauses enforceable
Entire agreement provisions are perfectly enforceable clauses.
In the event of a dispute where a party claims that a past agreement, representation, or understanding governs the relationship of the parties, a contracting party may leverage the entire agreement clause to demonstrate that all prior agreements were expressly superseded when signing the new contract.
Is the entire agreement clause necessary
Technically, the entire agreement clause is not necessary in all cases although it appears as a standard clause in most contracts.
The entire agreement clause will be necessary or useful to the extent you’ve had a prior agreement or understanding with the same contracting party in the past relating to the same business transaction.
If the contract you are signing is a new transaction and you’ve had no other prior agreements, representations, or understandings with the contracting party, then the entire agreement clause will become theoretical and without any particular value.
Is an entire agreement clause an exclusion clause
An entire agreement clause is not the same thing as an exclusion clause.
An entire contract provision expressly disregards all past agreements relating to the same business transaction whereas an exclusion clause limits the liability or legal obligations of a party to a contract.
Entire Contract Clause Takeaways
So there you have it folks!
The entire agreement clause is a contractual provision intended to prevent the contracting parties from relating to past statements, representations, agreements, or contracts relating to the same business transaction.
Past agreements or understandings may be written or oral.
In essence, the main objective of including an entire agreement contractual clause is to make it clear that this contract constitutes the entire agreement between the parties on the topic.
Now that you know what entire contract clause means, why it is used, and how it works, good luck in your contract drafting and negotiation!
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