Forget the past, look in the future. You must have heard these sermons.
This is it, don't look beyond this.
How do we implement this idea in contracts?
As it happens with all boilerplate clauses (relegated to fag end of a contract), not many really bother to read or analyse Entire Agreement clause – this happens to be one of the most overlooked clauses for that matter.
However, as I keep mentioning a problem or dispute can arise out of anywhere in a contract - Entire Agreement clause cannot be an exception, unless properly and thoughtfully drafted.
Typically, an entire agreement clause is incorporated on the following lines:
"This Agreements constitutes the entire understanding of the Parties on the subject matter hereof and supersedes any prior understanding or agreement between the parties".
Thus, this clause incorporates and reflects two critical aspects:
a) the subject contract encapsulates the entire understanding of the parties on the subject matter of the contract (for example, a Memorandum of Understanding is subsumed and superseded by a definitive contract on the subject matter or a Restated Contract incorporating amendments in an Original Contract replaces the latter); and
b) the contracts supersedes (in simple language cancels or overrides) any prior or contemporaneous agreements, arrangements, representations and warranties between the parties – be it written or not, be it formal or informal.
An entire agreement clause on its own may not be the trigger point of any conflict between the parties, if the parties have agreed and understood it and are working in pursuance of the contract adhering to everything contained therein. They shouldn't be carrying anything beyond the scope of the agreement, what we know as ultra vires generally.
However, in the absence of such a clause, if the parties are pursuing different transactions as per their understanding incorporating in different documents and relying on the commitments, representations, warranties, etc. therein, there could be an overlap or misunderstanding. The parties may see their respective rights and obligations differently if there is no one common source as genesis of these rights and obligations respectively. The parties may be relying on different documents for their understanding.
It is very common in commercial transactions to have a Memorandum of Understanding as the first stage basis of agreement on key terms. If by the time the parties reach the contract stage, there is some change in their understanding on any terms, it is incorporated in the definitive contract. A party may be living in a fool's paradise if it relies on the MOU even if the contract has been executed and has an Entire Agreement clause. Further, invariably, once executed, a contract is the one-stop-shop that the parties should look into, discarding everything that was discussed, agreed or implemented.
Entire Agreement is thus a powerful and sensible provision to resolve conflicting claims of the parties on basis of different documents. Therefore, draft and review it critically to convey the intended message to the parties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.