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By Victoria Lafite and Alexandre Lamarre, University of Montpellier, Centre du Droit de l'Entreprise, Program of Master 2 "Droit du Commerce International"

Overview

Product of the distrust regarding the use of extrinsic elements to interpret the contract, entire agreement clauses have become boiler plate provisions. If the validity of entire agreement clauses does not raise much concern (Inntrepreneur Pub Company v East Crown Ltd), their efficiency is not absolute. This efficiency can be improved in regard to the three main functions of these provisions: delineate the parties' obligations (Part I), structure the interpretation of the contract (Part II) and regulate trade and special usages (Part III).

Delineating the parties' contractual obligations

The effects of entire agreement clauses on the obligations of the parties concern both obligations raising from before (I) and after (II) the date of conclusion of the contract.

I. Barring the use of extrinsic elements raising from before the contract

In Common Law countries, the Parol Evidence Rule already makes the written contract prevail on the intention of the parties. In Civil Law systems, in the absence of indication in the contract, the judge is free to find the intention of the parties in extrinsic factors of the contract. Hence, entire agreement clauses permit to bare the use of extrinsic evidence to add obligations raising from before the contract entered into force. A special attention must be then given to preliminary agreements and correspondence that the drafters want to include in the final agreement. Beyond these documents, an entire agreement clause bars the use of almost all extrinsic evidence to add obligation raising from before the contract entered into force but terms implied in law, as implied warranties may still create obligations. It has for instance been decided that additional terms of a contract could not be efficient, because of the presence of an entire agreement clause (McGrath v Shah, 1989).

II. Barring the use of extrinsic elements raising from after the contract

Once the parties have refrained from researching in prior commitments to the written agreement the content of their obligations, they usually also wish that no extrinsic evidence of statements subsequent to the time the contract would amend the contract. At least, they want the possible modification to be in writing to be efficient. Because of consensualism, an entire agreement clause will not be sufficient to bar extrinsic evidence of statements subsequent to the time the contract was made from modifying the contract.

To bar the use of such evidence, a zip-up clause is necessary. A zip-up clause is composed by both a non-oral modification clause (NOM) and an anti-waiver clause. A simple zip-up clause could be: "This Contract may not be modified, waived, or amended but only by an agreement in writing, signed by both parties."

Narrowing the interpretation of the contract

In Common Law countries, the plain meaning rule already makes the judge look first at the written contract. He will look for the intention of the parties in extrinsic elements only when the contract provisions are obscure. In Civil Law systems, in the absence of indication in the contract, the judge is free to use extrinsic factors to find the intention of the parties. For example Article 1188 of the French civil code states that "[t]he contract is interpreted according to the common intention of the parties rather than only looking at the literal sense of its terms." The entire agreement clause may permit, in a certain measure, to make the written agreement prevail on the intention of the parties that may arise from extrinsic elements.

The efficiency of an entire agreement clause varies whether it implicitly (I) or expressly (II) refers to the interpretation of the contract.

I. Efficiency of an entire agreement clause implicitly referring to the interpretation

"This Agreement (including the Schedules hereto) expresses the entire agreement and understanding of the Parties with respect to the matters set forth herein and supersedes all prior agreement, negotiations, drafts among the Parties hereto."

In the later clause, the parties do not make an explicit reference to the interpretation of the contract. If a judge or an arbitrator is asked to rule on the interpretation of the contract, he might then look at extrinsic elements in order to determine the parties' intention. For instance, a Dutch Court refused to limit its interpretation of the contract to the final agreement, and looked for other circumstances to determine the parties' intention even though the contract was providing for an entire agreement clause (Lundifor/Mexx, 5 April 2013).

The possibility of extension of the entire agreement clause to the issue of interpretation of the contract has been refused by several courts, including the Court of Appeal of Paris (Court of Appeal of Paris, 4 March 1980), the International Chamber of Commerce (Decision cited by Y. Derains, Valeur interprétative des négociations, p.312). This is also in line with UNIDROIT Article 2.1.17 which reads: "[a] contract in writing which contains a clause indicating that the writing completely embodies the terms on which the parties have agreed cannot be contradicted or supplemented by evidence of prior statements or agreements. However, such statements or agreements may be used to interpret the writing." This rejection is mainly justified by the difference drawn between the binding force of a document, and its possible use for interpretation.

A part of the doctrine sees the extension of the entire agreement clause to the issue of interpretation of the contract as adequate. Entire agreement clauses making all pre-contractual documents null and void, a part of the doctrine considers that the interpretative power of such elements is affected. These scholars then argue that the entire agreement clause, although it does not refer to the interpretation of the contract, shall prevent the judge from looking at extrinsic elements of the contract to determine the parties' will.

An entire agreement clause not referring explicitly to interpretation will then certainly have effect on the binding force of extrinsic elements, but their use for interpretation remains uncertain. Then, one may advise a contract drafter to expressly address the issue of interpretation of the contract within the entire agreement clause.

II. Efficiency of an entire agreement clause expressly referring to the interpretation

"Regarding the interpretation of the Contract, no reference shall be made to documents established during the course of negotiations."

Here, there is no doubt that the parties want to bar the use of extrinsic elements by judges and arbitrators to interpret the contract. The judges or arbitrator are bound by the legal certainty principle, as the common agreement of the parties shall be respected. In this situation, it is said that the power of the parties to decide upon the interpretation of their contract supersedes the power of the judge to choose which documents he bases his interpretation on. Hence, the parties can restrict, suppress, or even arrange the power of the judge to interpret the contract.

However, some uncertainties remain on the efficiency of this type of entire agreement clause. First, it is inevitable that, in case of a litigation upon the bad faith of one of the co-contractors, the interpretation of the Judge or arbitrator will not be narrowed to the final agreement only. Principles such as good faith, loyalty or equity are considered to be substantial elements of the contract which cannot be negated by an entire agreement clause aiming at excluding prior undertakings. Second, questions of validity of the final agreement will be determined by taking into account all elements constituting the contractual sphere, and the judge or arbitrator might not be bound by an entire agreement clause, even though the latter expressly excludes extrinsic elements from the interpretation of the contract.

By limiting the power of interpretation of the judge, the entire agreement clause can give rise to an extreme situation involving a deadlock; a situation where the judge is unable to deduce the parties' actual intentions from the "whole agreement" targeted by the clause, and cannot look at extrinsic elements. The conflict between the entire agreement clause and the research of the parties intention will then impact the efficiency and coherence of the contract. In this situation, the judge might set aside the "express will", i.e. the entire agreement clause, and make the "actual will" of the parties prevail.

Regulating trade and special usages

"This instrument contains the entire agreement of the parties with respect to the subject matter hereof and there is no other promise, representation, warranty, usage or course of dealing affecting it."

Such an entire agreement clause expressly excluding usages from the contract has been considered by a US case as valid and efficient (Exxonmobil Sales and Supply Corporation v Texaco Ltd). In this case, usages were excluded from the contract only because an entire agreement clause was expressly referring to and excluding them. A provision which does not expressly exclude usages from the contract would not lead to the same solution.

Parties should also make sure to exclude usages specific to the relationship. While the sources of usages are varied, the usages specific to the relationship, named course of dealing, originate from the parties themselves. They are not excluded by a simple general reference to usages: a specific exclusion of the course of dealing is needed.

Conclusion

To summarize the foregoing, one may advise the following clause:

This Contract constitutes the whole agreement of the parties; it replaces all previous correspondences, proposals, offers, usages, course of dealings, and conventions including implied contracts or commitments. This Contract may not be modified, waived, or amended but only by an agreement in writing, signed by both parties. Regarding the interpretation of the Contract, no reference shall be made to documents or communications which could have occurred during the course of negotiations.

Additional Sources

CASES

Inntrepreneur Pub Company v East Crown Ltd [2000] 2 Lloyd's Rep. 611

McGrath v. Shah (1989), 57 P. & C.R. 452

Dutch Supreme Court, 5 April 2013, Lundiform v. Mexx (LJN BY8101)

DOCTRINE

H. Dubout, Les clauses d'entire agreement (accord complet) dans les contrats internationaux : intérnêt et précautions d'utilisation, C.J.F.E. n°1/89, pp.193-209

T. de Ravel d'Esclapon, Variations sur la clause d'intégralité á l'heure de la réforme du droit des contrats, AJ Contrat 2017, pp. 374-381

E. Allan Farnsworth, The Interpretation of International Contracts and the Use of Preambles, RDAI/IBLJ, n°3/4, 2002

E. Rawach, La portée des clauses tendant á  exclure le rôle des documents précontractuels dans l'interprétation du contrat, Receuil Dalloz 2001, pp. 223-231

D. Mazeaud, L'encadrement des pouvoirs du juge : l'efficacité des clauses relatives á l'interpretation, Revue des Contrats 31/03/2015, n°1, p. 187

BOOKS

M. Lamoureux, La clause d'intégralité en droits français, anglais et américain, RLDC 2007, 35, est. No.15

J.M. Mousseron, Technique contractuelle, 5ème édition by P. Mousseron, J. Raynard, J.B. Seube, éditions Francis Lefebvre, 2017

 

Region: Global
Interest Area: Commercial and Contracts
The information in any resource collected in this virtual library should not be construed as legal advice or legal opinion on specific facts and should not be considered representative of the views of its authors, its sponsors, and/or ACC. These resources are not intended as a definitive statement on the subject addressed. Rather, they are intended to serve as a tool providing practical advice and references for the busy in-house practitioner and other readers.
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