ENTIRE CONTRACT CLAUSE

Do you know what an entire contract clause is? Do you understand the implications of such a clause? Entire contract clauses are found in all different types of written agreements. But I will focus here on their inclusion in an agreement to sell/purchase house and land.

If you were ever involved in the sale/purchase of house and land, there ought to have been an agreement for sale. It is likely that the agreement would have included an entire contract clause. This is not required by any law, but it is the customary thing. A typical entire contract clause would read as follows: “The terms of this contract represent the entire agreement between the parties and replace all other representations, understandings, arrangements or agreements made between the parties that relate to this sale”. It is likely to be placed close to the end of the agreement.

An entire contract clause can be very useful. Usually, there would be a period of negotiations before finally settling on important aspects of the agreement. During the period of negotiations, parties may have had different positions. For example, the seller of the property may have started off by quoting one price and the buyer would have broken him down. The objective of putting the agreement in writing and including an entire contract clause is to avoid misunderstanding and possible litigation down the road. All parties who sign on to the agreement would know that, regardless to what was done or said before, what has been finally agreed to is what is contained in the written document.

Michael & Kenneth Agreement for Sale

This takes me to a situation I came across recently. After hard negotiations, Michael (fictitious name), who was based in the US, contracted to purchase a property in Grenada from Kenneth (fictitious name) for $350,000.00 US. Kenneth lived all his life in Grenada and inherited the property from his deceased parents. The property was initially advertised for $500,000 US. It remained on the market for several years before the deal was made. An agreement for sale was drawn up by Kenneth’s attorney. The agreement for sale had the usual terms related to deposit, closing date, title and it also contained an entire contract clause.

Michael had a bank account in Grenada and decided to pay the money from funds in this bank account. He paid the standard deposit, the equivalent of $35,000.00 US, and after three months, he paid the remainder of the sale price when the transaction was closed.

However, several weeks after the property was transferred to Michael, Kenneth’s lawyer despatched a letter to Michael’s lawyer alleging that Michael had not paid the full sale price. He claimed that Michael paid $934,500.00 EC when he was supposed to pay $950, 915.00 EC, a shortfall of $16,415.00 EC.

After examining the matter, it was realised that the basis for the dispute was the fact that the parties in their agreement for sale did not specify the exchange rate to be applied to the $350,000 US.

Four Different Exchange Rates

There are four different exchange rates for the US dollar which may be relevant to a sale of property quoted in US dollars but which requires the money to be paid in EC dollars. They are:

(i) The official exchange rate. This rate was established since July 7th 1976 when the EC dollar was pegged to the US dollar. It is $2.70 EC for a US dollar.

(ii) The bank selling rate. If you go to the bank to buy US dollars you are required to pay $2.7169 EC for a US dollar

(iii) The bank buying rate. If you take US dollars to the bank and want to get EC dollars, the bank will give you $2.67 EC for each US dollar.

(iv) The wire transfer and foreign cheques rate. If you get a wire transfer or a cheque from the US, the bank will give you $2.688 EC for each US dollar you receive.

Bank buying rate applied

Since Michael was paying in Grenada, he assumed that the applicable rate was $2.67, the rate Kenneth would get if he took the US dollars to the bank. Michael therefore calculated the price of the property at $934,500.00 EC. However, in Kenneth’s mind the price was quoted in US dollars and he was expecting to receive his money at the rate of $2.7169. In other words, he was expecting to receive $950,915.00.

With the sale agreement having an entire contract clause and being silent on the matter of the applicable exchange rate, the situation is not bright for Kenneth. There is nothing in the agreement for sale that he can point to in order to say that the price of the property was $950,915.00 EC and not $934,500 EC.

Take-aways

One take away from this is situation is that parties must carefully read written agreements. This is particularly so when the agreement contains an entire contract clause. If the contract contains such a clause it would be very, very difficult to insist that you had agreed on something that is not in the contract.

A second take away is that in the Grenadian real estate market, where prices are often quoted in US dollars, ensure that the applicable exchange rate for the US dollar to the EC dollar is agreed on and include it in the agreement for sale. As Kenneth can attest, failure to do so can make a significant difference.

JOSEPH EWART LAYNE

This article is for general information purposes only. Its contents do not constitute legal advice. Before you act on any matter in this article, seek advice from an attorney-at-law.

Joseph Ewart Layne is the Principal of JEL Professional Solutions Inc. He is a graduate of Hugh Wooding Law School; he holds a LLB (Honours) and a LLM (Corporate & Commercial Law) from London University and a LLM (Legislative Drafting) from UWI, St. Augustine. He also holds a BSc. (First Class Honours) in Applied Accounting from Oxford Brookes University and is an ACCA Affiliate.