Buried at the back-end of many complex commercial contracts is an innocuous general provision called the Entire Agreement Clause. It’s like a weak mini-Release. It is usually incorporated into the deal as an afterthought – a mere cut-and-paste from the precedent. In essence, the clause provides that all negotiations and representations are to be ignored and no party may look beyond the contract.
Does it work? In most cases, yes.
By experience, this clause has never stopped any aggrieved contracting party from bringing a lawsuit based on oral or written misrepresentations surrounding the deal. Although the courts have been uneven in dealing with these types of claims, they have generally fallen back to the position that misrepresentations were either not relied upon or to be ignored under the entire agreement clause. That being said, the claims keep coming in and the court’s sympathies to a hoodwinked litigant remain.
The Entire Agreement Clause has rarely been the subject of much legal scrutiny particularly at the level of the Ontario Court of Appeal Now it has in the case of Soboczynski v. Beauchamp 2015 ONCA 282.
In an uncontroversial decision, the OCA confirmed that the clause did not apply to representations subsequent to the date of closing, as it is a retrospective not prospective clause. There were some twists.
The procedural history was unusual in that the litigation went all the way from the Small Claims Court, through the Divisional Court to the Ontario Court of Appeal. That’s a lot of legals over small dollars.
The facts of the case were even more unusual involving a standard residential agreement of purchase and sale and a most unwise vendor who, for no apparent reason, signed a piece of paper weeks after he signed the binding agreement. The paper said there had been no floods and he’d let the purchaser know if anything changed before closing. Then the home flooded before closing, the vendor cleaned it up, the purchaser closed, the purchaser had a flood of his own, the purchaser found out about the prior flood, and the purchaser sued for damages.
Under these bizarre circumstances, the OCA found that the entire agreement clause did not act as a bar to the claim. However, this plaintiff just couldn’t seem to buy a break. The OCA went on to find that there was no reliance on the misrepresentation and there were no monetary damages flowing from it.
For parties to any agreements in any area of law, an Entire Agreement Clause should always be considered. More importantly, thought should be given to making it effective up to the closing date (rather than the signing date) to broaden protection. A throw-away clause can make all the difference in ensuing litigation, although in Soboczynski this turned out not to be the case.