Whether you are buying your first home or papering a multimillion-dollar corporate deal, chances are you will see an “entire agreement” clause somewhere toward the end of your contract.1 Sometimes known as an integration clause, an entire agreement clause confirms that there are no other terms, conditions, warranties or collateral agreements to the agreement, whether express or implied, except for those expressly set out in the document to be signed. The reason for these types of clauses is obvious – you don’t want the other side taking the position that some previous draft or letter or e-mail formed part of your written contract, then suing you for breach or negligent misrepresentation. As one judge put it:
“An entire agreement clause is generally intended to lift and distill the parties’ bargain from the muck of the negotiations. In limiting the expression of the parties’ intentions to the written form, the clause attempts to provide certainty and clarity.”2
But the entire agreement clause can cause its own mischief. The case Soboczynski v. Beauchamp illustrates just how much trouble a few words in this standard-looking clause can create.
In Soboczynski, Mr. and Mrs. Beauchamp sold their house to Mr. and Mrs. Soboczynski. They signed a standard agreement of purchase and sale (“APS”). After signing the APS but before closing, the vendors also signed a Seller Property Information Statement (“SPIS”), which said that the house was not subject to flooding. As it happened, the house flooded twice before closing: once on January 9 and once on January 18, 2008. Once the Soboczynskis learned that the statement in the SPIS was not true, they sued for negligent misrepresentation. But there was a problem. The APS contained a standard-looking entire agreement clause that said:
“[The APS] including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects [the APS] other than as expressed herein.”
Did the entire agreement clause mean that the Soboczynskis could not sue on the basis of the SPIS? The trial judge thought so. The Soboczynskis had to appeal their case to the Divisional Court, which found in their favour. But the Beauchamps brought a further appeal to the Court of Appeal. So what did the Ontario Court of Appeal decide?
In writing the judgment of the court, Justice Epstein looked closely at the grammar of the clause. It was worded in the present tense – “There is no representation, warranty, collateral agreement or condition, which affects …” Therefore, the clause only applied to representations, warranties, collateral agreements and conditions entered into before the APS. It did not bar a claim arising out of the SPIS, which was signed after the APS. In the words of Justice Epstein, the entire agreement clause operated “retrospectively, not prospectively.” The Court of Appeal found that the Soboczynskis were not barred by the entire agreement clause.3
The Soboczynski case is a reminder to pay close attention to those boilerplate entire agreement clauses. Depending upon even slight differences in wording, such a clause can prevent you from suing based on future written misrepresentations.