A majority of contracts contain an entire agreement clause. Also known as an integration clause or merger clause, an entire agreement clause declares that the contract represents the complete and final agreement, thereby protecting the contracting parties. In other words, the contract supersedes any prior agreements the contracting parties might have made with regard to the subject of the contract.
It is crucial in contracts to spell out that the contract only covers the provisions written into it and that no other agreements, whether oral or written, are to be expected. This need is the main reason for an entire agreement clause and indicates that any previous drafts of the contract, oral agreements between the parties or letters of intent are no longer valid unless provided for in the contract. This effectively stops either party from claiming that there are other promises and terms to the agreement that are not written into the contract.
Basic business contracts where entire agreement clauses can be found include:
- Employment contracts. These contracts typically detail salary, benefits and retirement provisions. An entire agreement clause prevents employees from coming back later and claiming they are owed more than the contract specifies.
- Franchise contracts. These contracts cover the agreement between the franchisor and franchisee and stop the franchisee from demanding more than is provided for in the contract.
- Sale of goods contracts. These contracts indicate price, amount and terms of delivery. Here the clause prevents a customer from declaring that the salesperson promised more than is written into the contract.
Parol Evidence Rule
Once an entire agreement clause has been inserted into a contract, it is termed an "integrated contract." According to the parol evidence rule, once a contract is integrated in a written contract, it becomes the exclusive statement as to the terms of the contract. Although the term parol refers to oral agreements, the parol evidence rule also applies to written agreements.
Guidelines to Consider
When drawing up a contract with an entire agreement clause, you should consider these guidelines:
- Because it is an operative provision, place the entire agreement clause near the end of the contract along with a choice of law provision and an arbitration clause.
- Because the entire agreement clause excludes all oral and written agreements made before the contract, be sure that any agreements made are addressed in the contract.
A basic entire agreement clause includes a statement declaring that the contract represents the entire agreement between the contracting parties. This agreement also states that the agreement supersedes all other agreements that have come before it. Entire agreement clauses are generally enforceable throughout the world and can be used on international contracts.
Sample Entire Agreement Clause
A more elaborate version of the entire agreement clause would read:
This Agreement and the Attachments hereto constitute the entire agreement between the contracting parties concerning the subject matter hereof. All prior agreements, discussions, representations, warranties and covenants are merged herein. There are no warranties, representations, covenants or agreements, expressed or implied, between the parties except those expressly set forth in this agreement. Any amendments or modifications of this agreement shall be in writing and executed by the contracting parties.
It is important to note that the entire agreement clause does not cover misrepresentation. The clause cannot be used in cases where one or both of the parties have acted in bad faith. An example is found in the disclosure laws in real estate where everything must be disclosed and, if not, the buyer can come back at the seller. Contracts can be written where the buyer accepts everything as is and has no legal avenues in case of misrepresentation.