Canada: Whole/Entire Agreement Clause

Last Updated: November 15 2016
Article by Brendan Sawatsky

Introduction

Whole agreement, or entire agreement, clauses can be found in most commercial contracts. This type of clause serves to confirm the scope of the agreement and allocate various risks between the contracting parties. In a recent decision, Houle v Knelsen Sand and Gravel Ltd,1 the Alberta Court of Appeal provided guidance on the applicability of whole agreement clauses in relation to disputes between contracting parties regarding negligent and innocent misrepresentations.

Facts

The Houles identified and pursued development of a parcel of land they believed to contain valuable gravel deposits estimated between 800,000 and 900,000 tonnes. As part of the development, an assessment of the gravel deposit was obtained from a third party which estimated that there might be 444,850 tonnes of gravel in the land. The Houles approached Knelsen Sand and Gravel Ltd. ("Knelsen") to extract the gravel. After receiving the third party estimate from the Houles, Knelsen's manager concluded the lands would yield 457,000 tonnes of gravel.

After a series of negotiations, the parties reached an agreement whereby the Houles would sell the land and permits to Knelsen in exchange for $800,000, calculated at $1.60 per tonne for 500,000 tonnes, (the "Agreement"). The Agreement was prepared by counsel and, at the request of the Houles, a whole agreement clause was included as follows:

The Purchaser acknowledges that he has inspected the property and that he is purchasing the property as is and that there is no representation, warranty, or collateral agreement or condition affecting the property or this offer other than as expressed herein in writing.

Payment under the Agreement was structured so that Knelsen made a deposit and initial payment totaling $400,000 and a final payment of $400,000 was to be paid after one year. Shortly after Knelsen began extracting gravel, it became apparent that there was much less economically extractable gravel than estimated. As a result, Knelsen refused to make the final payment of $400,000 and the Houles filed a lawsuit to enforce the Agreement. Knelsen responded with claims of breach of contract, negligent misrepresentation regarding the amount of gravel available, and in the alternative, innocent misrepresentation.

Decisions

The lower court rejected Knelsen's assertion of a negligent misrepresentation but accepted that an innocent misrepresentation was made and held that the whole agreement clause did not apply to this innocent misrepresentation. This entitled Knelsen to rescind the Agreement and claim damages.

On appeal, the Court of Appeal found the lower court erred in finding the whole agreement clause did not apply to innocent representations, thus depriving the certainty which the whole agreement clause was intended to deliver.2 The Court of Appeal held that the whole agreement clause determined the obligations of each party in accordance with the written terms of the Agreement and not on any negotiation or discussion which had not been included in the Agreement and thus formally acknowledged by the contracting parties.3 The Court of Appeal reversed the lower court decision and awarded the Houles the $400,000 owing under the Agreement.

Concluding Thoughts

When a court interprets the meaning of this type of clause it does so in accordance with the intentions of the parties as reflected in the words used in their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.4 Therefore, the language used in whole agreement clauses should be precise. If the intention of the contracting parties is to include representations made in documents or agreements such as letters of intent or confidentiality agreements, the whole agreement clause should specifically identify these representations. Constructing the whole agreement clause in this manner, as opposed to generally setting out which representations are not included in the agreement, may go a long way to ensure certainty between the parties.

If a party wishes to rely on a specific representation made during the course of negotiations, it should make sure that this representation is included in the contract, particularly if the contract contains a whole agreement clause.

Footnotes

1. 2016 ABCA 247.

2. Ibid., at para 20.

3. Ibid., at para 23.

4. Ibid., at para 23.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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