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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. Often, before drafting a written contract, you 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 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 sets out the specifics of an entire agreement clause. 

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 below example of an entire agreement clause:

“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.”

What Is the Purpose of an Entire Agreement Clause?

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

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. Your written contract will be drafted to reflect the final outcome of your negotiations.

Additionally, an entire agreement clause makes your contract an exhaustive statement of the express terms written in the contract. Such a clause clarifies that any prior 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. 

As a result, you can use an entire agreement 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 this clause in your business contracts is a useful way to establish the parties’ intention that the written contract is the complete agreement. Therefore, any statements that either party made in prior negotiations are not contractually binding. Hence, you cannot rely on these statements. An exception is if your written contract specifies a reliance on prior discussions. 

You may forget to include or purposefully disclude adding an entire agreement clause in your business contracts. In that case, there may be confusion about what constitutes the arrangement and whether statements made during negotiations are 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 It?

An entire agreement clause 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. This 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.

Suppose 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. 

A contract may include a variation clause that allows parties to vary or modify the contract terms after signing 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. You must ensure that 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 prior statements either party makes during negotiations. It also mitigates the risk of a misunderstanding eventuating into a dispute. When considering whether to include this clause, it is also essential to note its effectiveness. You should keep in mind that you cannot contract out of statutory obligations. 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.

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