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When reaching an agreement with another party, you can use a written contract to define the parameters of your agreement. In running your business, you enter contracts with various parties, including your clients, suppliers or contractors. Before drafting and signing a written contract, you often spend time negotiating the terms of the arrangement with the other party. Once you have both come to an agreement, you (or your lawyer) can draw up a contract. This final contract will generally be based on your agreed understanding of the arrangement. An entire agreement clause outlines that the written contract represents the whole agreement between the contracting parties. This article explores this clause and its effectiveness. 

What Does an Entire Agreement Clause Look Like?

You can engage a lawyer to draft an entire agreement clause in various ways. Most commonly, it includes wording similar to the example below:

“This Agreement contains the entire understanding between the Parties, and supersedes all previous discussions, communications, negotiations, understandings, representations, warranties, commitments and agreements, in respect of its subject matter.”

When negotiating contracts with your clients, suppliers, or contractors, negotiations will likely occur through: 

In these situations, you spend time corresponding and negotiating the details of your arrangement with the other party. Ultimately, the final result of your negotiations may be quite different to what you, the other party or both of you initially expected. Accordingly, you can draft your written contract to reflect the final outcome of your negotiations.

You may sign an HoA, MoU, or LoI with the other party in the course of your negotiations. These types of agreements can be helpful documents that will assist when it comes to writing up the commercial and legal terms of the final contract. Typically, an entire agreement clause in the final contract will replace the HoA, MoU, or LoI signed between you and the other party. However, this will ultimately depend on how you draft the HoA, MoU, or LoI and whether either party intended for the agreement to be binding

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What Is the Purpose of an Entire Agreement Clause?

An entire agreement clause makes your contract an exhaustive statement of the terms written in the contract. Such a clause clarifies that any previous negotiations that may include statements, promises or representations made by the parties outside the written contract do not form part of the written contract. Hence, they do not have any contractual force. 

Therefore, you can use this clause to ensure contractual certainty. Likewise, the clause limits the terms of a contract to only what is written. The impact is that the clause prevents the other party from claiming that the contract includes additional terms not included in the written contract that the parties have signed. 

Should I Include an Entire Agreement Clause in My Contracts?

Generally, including an entire agreement clause in your business contracts is useful to establish the parties’ intention that the written contract is the complete agreement. Therefore, any statements that either party made in prior negotiations have a higher likelihood of not being contractually binding. If a dispute arises, it is also less likely that the other party could rely on these statements. 

You may forget to include or purposefully exclude adding an entire agreement clause in your business contracts. In that case, there may be confusion about what constitutes the arrangement. Importantly, are statements made during negotiations part of the contract? If you and the other party cannot resolve the issue around what terms are part of the arrangement, it may escalate into a dispute. 

How Effective Is an Entire Agreement Clause?

An entire agreement is a good acknowledgement that the parties to a contract intend on excluding terms which the contract does not expressly state or include. However, there are limits to how effective this clause may be. For example, an entire agreement clause will also not exclude certain terms required by statutory law. 

For example, you cannot contract out of consumer guarantees under the Australian Consumer Law (ACL). Suppose you make misrepresentations during negotiations and include an entire agreement clause in your final contract. In that case, an entire agreement clause will not allow you to contract out of your ACL obligations. Further, recent law suggests that if a party relied upon a representation when entering into the written contract, this representation might also form part of the contract. However, this will ultimately depend upon the circumstances of the situation. 

A contract may include a variation clause that gives parties the right to vary or modify the terms of the contract after both parties sign it. So, while an entire agreement clause is in place, it may still be possible to amend the contract terms. Before making amendments, it is best to engage a lawyer to ensure you are lawfully amending terms according to the contract’s variation clause. 

Key Takeaways

An entire agreement clause is a useful tool when drafting a business contract. Firstly, it clarifies that the written contract is the entire agreement and excludes any parties’ prior statements during negotiations. It also reduces the risk of a misunderstanding which can lead to a dispute. When considering whether to include an entire agreement, it is also essential to note its effectiveness. You should keep in mind that you cannot contract out of statutory obligations like those in the Australian Consumer Law by using an entire agreement clause. Further, if there is a variation clause in the contract, you may amend certain terms in the future. 

If you have any questions about an entire agreement clause or need assistance with drafting a contract for your business, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is an entire agreement clause?

An entire agreement clause is a provision you can include in your contract. It clarifies that the contract in question outlines the entire contractual relationship between the parties and each person’s obligations. Notably, if the clause is legally binding, it clarifies that any previous negotiations do not form part of the written contract.

What are the limits to this clause?

There are some limits to what you can contract out of. For example, you cannot contract out of consumer guarantees under the Australian Consumer Law (ACL). These laws apply if you supply goods or services to consumers. Likewise, your contract does not explicitly provide consumers with consumer guarantees. In that case, an entire agreement clause does not allow you to contract out of your obligations to provide consumer guarantees. 

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