South African Contract Law is fundamentally a modernised version of the Roman-Dutch Law of Contract. A contract can be defined as an agreement entered between two or more Parties with the intention of creating a legal obligation. As such, Contract Law provides the legal framework within which these persons can transact business and exchange resources, secure in the knowledge that the law will uphold their agreements and, if necessary, enforce them.
Most forms of contracts, especially commercial ones, tend to contain a variety of so-called “boilerplate” clauses. These are clauses with standard wording that are routinely used. One of most frequently used clauses – and which plays an important role when contracts have gone awry – is the “Entire Agreement” Clause.
An Entire Agreement Clause generally provides that the contract reduced to writing constitutes the entire agreement and understanding between the Parties. The focus of the clause is on ensuring clarity on the exact terms that the Parties have agreed upon. However, it must be noted that such a clause effectively nullifies any previous understandings if such have not been incorporated into the agreement.
This is to prevent the Parties from subsequently raising claims that statements or representations made during contractual negotiations, and prior to the signing of the written contract, constitute additional terms of the agreement. Parties thus include an Entire Agreement Clause in the Contract to prevent those pre-contract statements and representations from having any contractual force.
An Entire Agreement Clause often contains the following elements:
An entire agreement statement: a statement in the contract that the Parties agree that the terms of the contract between them are to be found within the text of the contract document and nowhere else.
An exclusion of liability for misrepresentation:
an acknowledgment by the Parties that they have not relied on any representation which is not set out in the contract;
a statement excluding liability for misrepresentation; and
a statement limiting remedies for misrepresentation to those available for breach of contract; and
A carve-out for fraud: An express statement that the Entire Agreement Clause is not intended to exclude liability for fraudulent misrepresentation. This seeks to limit the Parties’ liability should be included in the contract, or the Courts may draw conclusions from the discrepancy.
It’s important to take note of some pitfalls when drafting an Entire Agreement Clause:
If the contract includes schedules or other attachments, it is important to check that the definition of the “contract” includes these schedules or other attachments.
If there are multiple contracts forming part of the same transaction, it is important to include them in the wording of the entire agreement clause.
An example of a comprehensive Entire Agreement Clause would be as follows:
“1. This agreement [and [list other relevant agreements, if applicable]] constitutes the Entire Agreement between the Parties and supersedes and extinguishes all previous drafts, agreements, arrangements and understandings between them, whether written or oral, relating to this subject matter.
2. Each Party acknowledges that in entering into this agreement it does not rely on, and shall have no remedies in respect of, any representation or warranty (whether made innocently or negligently) that is not set out in this agreement.
3. No Party shall have any claim for innocent or negligent misrepresentation based upon any statement in this agreement.”