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Company Law

Analysis - guidance - compliance

19 SEP 2014

Entire Agreement clauses

Entire Agreement clauses
Buried somewhere in all those legal words towards the end of a contract, there is usually an innocuous clause called an “entire agreement” clause, which says that the document contains the entire agreement between the parties and supersedes all prior agreements and discussions. A sensible enough precaution: make sure everything is there in the one document.

But beware – it means that everything must be in that document, and you can’t subsequently argue that everyone had understood there to be a provision which wasn’t in the final version. In deciding what a contract means, the court has to look at the factual background and what the parties knew, as a matter of fact, at the time they entered into the agreement. But it has long been the case in England that the court cannot look at background negotiations to decide what the parties probably meant by the words used or infer that changes in wording in the course of negotiations meant the parties intended one thing or another.

In a recent case, the Court of Appeal was asked to look at written heads of agreement to clarify what was actually written in the final contract, but said it could not do that partly because of the rule explained above, and partly because the agreement contained an entire agreement clause, which said (expressly) that the parties intended the document they had signed to supersede and override the heads of terms. Very occasionally, the courts will “rectify” a contract by implying additional terms into it, but only in circumstances where it is obvious that those terms must have been “understood” between the parties and the terms are essential for the contract to make sense.

Otherwise, when the contract says it is “the entire agreement and understanding between the parties” – it is!

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