A recent case referred to us concerned a dispute over whether a promise made by one party to another before they signed a contract was binding.
A seller of a business was promised that as part of the deal he would be kept on as a consultant for one year which would enable him to earn additional funds by way of fees in addition to the monies he was receiving from selling the business.
The problem arose due to the fact that no mention was made of this understanding in the business purchase agreement. The seller believed that the buyer should honour their verbal agreement but the buyer refused to do so relying on the written agreement, which made no mention of their verbal agreement.
We were consulted by the buyer to see if the seller could enforce the verbal agreement. A review of the written agreement revealed that it contained an “Entire Agreement” clause.
The Entire Agreement clause provided that:
“This agreement constitutes the whole agreement and understanding of the parties and supersede[s] any previous arrangements, understanding or agreement between the parties relating to the subject matter of this agreement. The Buyer acknowledges that it has not been induced to enter into this agreement and hereby waives any remedy in respect of, any warranties, representations, undertakings, promises or assurances not incorporated expressly into this agreement.”
The effect of this clause was to exclude any previous promise made to the Seller as such promise was not included within the agreement.
This clause was brought to the Seller’s attention and he withdrew his claim. The lesson here is to read all of the clauses in a contract before signing it including those which appear near the end of an agreement. If a promise has been made to induce a party to enter into an agreement, then such promise must be clearly included in the terms of the agreement.
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