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Contracts record an agreement between two parties, creating binding obligations that are legally enforceable. Generally, a written contract will describe the whole relationship between contracting parties. However, in some circumstances, documents other than the written contract may affect the commercial agreement. Parties often include an ‘Entire Agreement clause’ (EA clause) within a contract to avoid confusion and potential disputes. This article will explore what an EA clause is, how your business can use one and the potential issues of a poorly drafted clause.
Entire Agreement Clause
Before parties sign a contract, they will often undergo negotiations or send emails back and forth that relate to the final contract. Sometimes, these initial discussions can give rise to legal obligations. To avoid this, contracts will include an EA clause. Effectively, an EA clause means that the written contract reflects the entire agreement between the parties. As such, only the terms in the contract form the subject matter of the agreement. Thus, in any future legal dispute, your company can exclude any comments made outside the contractual agreement.
Why Include an Entire Agreement Clauses
In a dispute, parties may claim that discussions outside the contract also impact the agreement. Such assertions can undermine the terms of the contract and disadvantage your business. However, if you have an EA clause, you can argue that the parties agreed at the outset that other documents and comments would not affect the agreement.
Another scenario may be that a verbal agreement was made before signing the contract and was accidentally excluded from the final written agreement. Again, your company could argue that the EA clause ensures that any excluded terms cannot form part of the agreement.
A party could try and argue that verbal and written comments form part of the contract, including:
- emails;
- telephone or video conference calls;
- online messaging;
- text messages;
- memorandums of understanding; or
- letters of intent.
Without an EA clause, the other party may have a greater chance of persuading a court that these communications or documents also formed part of the agreement.
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Recognising an Entire Agreement Clause
You can identify an EA clause as it usually begins with ‘entire agreement’ or ‘entire understanding’ and is relatively short.
A typical clause is likely to state that:
- it contains the ‘entire understanding between the parties’;
- it overrides all previous verbal discussions between parties upon signature; and
- any prior agreements or written messages are overridden upon signature.
Therefore, a well-drafted EA clause is concise and to the point.
Excluding an Entire Agreement Clause
The law automatically introduces some contractual clauses which are ‘implied’ into certain contracts. So, for example, if the contract relates to payment, it is likely that the requirement to pay VAT will still apply even if the written agreement does not explicitly state this. Similarly, some contract terms are deemed ‘unfair’, which will remain the case regardless of an EA clause.
Finally, if your company and the other party include a variation clause, this can override the EA clause. A variation clause allows either party to change the contract in specific circumstances. However, as long as the variation clause provides limited powers, it should not wholly invalidate an EA clause.
Disadvantages to Using Entire Agreement Clause
Including an EA clause does not guarantee that a future court will uphold it. Occasionally, a judge might determine that the contract did not accurately reflect the agreement despite including an EA clause.
Furthermore, an EA clause could negatively impact your company. Imagine signing a contract on behalf of your business and then realising that an important term is missing. The other party might refuse to add the clause to the written agreement and rely on the EA clause.
Key Takeaways
Many business owners prefer the certainty an EA clause provides. On the whole, an EA clause can benefit your company and the other party by narrowing the boundaries of your commercial deal to one written document.
If you need help with the use of an EA clause, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Sometimes, yes. An EA clause can be a tricky and technical clause to draft. A court may strike the EA clause from the agreement if it is incorrectly worded or difficult to understand.
No, it is not. However, including it is usually in your company’s best interest.
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