Entire Agreement Clause

What is an entire agreement clause?

Entire agreement clause (German: Vollständigkeitsklausel) denotes a contractual provision under which the contract document, with its annexes, contains everything the parties have agreed on the subject matter of the contract. Earlier oral or written arrangements are thereby to be superseded.

The clause works like the agreed minutes at the end of a long meeting: what is in them is deemed agreed. Anyone who later relies on a promise that is missing there must prove it.

It originates from Anglo-American contract practice (where it is also called a merger clause or integration clause) and is today standard in company purchase agreements, investment agreements and shareholders' agreements. It matters above all after long negotiations. Before signing, there are usually a letter of intent (LOI), an outline paper of key terms (term sheet), presentations and answers from the data room, the collection of all due diligence documents. The clause clarifies which of these documents still apply alongside the final contract (definitive agreement).

Effect of the entire agreement clause under German law

Rebuttable presumption

Under German case law, even without a special clause there is a presumption that a contract document is complete and correct. Anyone who relies on an oral side agreement, that is, on an additional arrangement outside the document, must prove it. The entire agreement clause reinforces this presumption but does not make it irrebuttable: the opposite remains provable. If it is proven that the parties made a further arrangement and intended it to apply, that arrangement is binding despite the clause, provided no formal requirement stands in the way.

To be distinguished from this is the superseding effect. Where the clause expressly cancels earlier agreements, such as an LOI, the parties effectively agree on their end. For arrangements that are meant to continue alongside the contract, by contrast, the question remains one of proof.

Interpretation and history of the contract

Under US law, the parol evidence rule excludes certain evidence of earlier arrangements in the case of a fully integrated contract. A German court, by contrast, interprets contracts under Sections 133 and 157 of the German Civil Code (Bürgerliches Gesetzbuch, BGB), that is, according to the parties' real intention and good faith. It also draws on surrounding circumstances, earlier drafts and the history of the negotiations. The clause concerns the question of whether there are further arrangements, not the question of how those made are to be understood.

Entire agreement clauses in general terms and conditions

If the clause appears in general terms and conditions (Allgemeine Geschäftsbedingungen, AGB), that is, in contract terms that one side pre-formulates for many contracts, the priority of individually agreed terms under Section 305b BGB applies. An agreement made in the individual case takes precedence over pre-formulated terms, whether it came about orally or in writing. A clause in general terms and conditions can therefore not take away the effect of a demonstrably made side agreement. Only a clause that restates the presumption that applies anyway stands. Negotiated company purchase and investment agreements are, as a rule, not general terms and conditions; unchanged standard contracts used by an investor can be.

Side agreements, annexes and notarisation

What belongs to the complete agreement

The clause should list which documents make up the complete agreement. These include the main contract with its annexes, in particular the disclosure schedule, in which the seller discloses known risks. In addition come separately concluded transaction documents such as managing director service agreements or trust agreements. What is not named there falls under the presumption of not being part of the contract content.

In company purchase agreements, the clause often reads along these lines: “This agreement, including its annexes and the transaction documents listed in it, contains all agreements of the parties on its subject matter. It supersedes all earlier agreements on this subject with the exception of the confidentiality agreement. No side agreements exist.”

Contracts requiring notarisation

For contracts on GmbH shares, the obligation to assign requires notarial authentication under Section 15(4) of the German Limited Liability Companies Act (GmbH-Gesetz, GmbHG). The notarisation must cover all arrangements that are, according to the parties' intention, part of the transaction. A side letter that is not notarised, for example on a special payment, is formally invalid and can endanger the entire contract. The defect is cured only by the assignment of the shares in the proper form (Section 15(4) sentence 2 GmbHG). The entire agreement clause does not help here: if such a side agreement has in fact been made, the formal defect remains.

Confidentiality agreement, LOI and term sheet

If the clause supersedes all earlier agreements on the subject matter of the contract across the board, it can also capture the confidentiality agreement (NDA) and an exclusivity arrangement. An exclusivity arrangement is the promise not to negotiate with other interested parties for a period of time. An express rule is therefore customary: LOI and term sheet are superseded. The confidentiality agreement continues until closing, that is, until the transfer of the shares against payment, or is absorbed into the confidentiality clause of the contract.

Limits: deceit and intent

The clause does not protect against liability for fraudulent misrepresentation. A person deceives fraudulently in particular if they knowingly make false statements, for example on revenue or customer relationships in a pitch deck or a management presentation. Anyone induced to enter into the contract in this way can rescind their declaration under Section 123 BGB and thereby eliminate the contract retroactively; damages may also come into consideration. Liability for intent cannot be excluded in advance under Section 276(3) BGB.

Company purchase agreements often combine the clause with an exclusion of all claims outside the warranty catalogue, that is, the list of the seller's promises about the condition of the company. Intent and fraud remain excepted. This then also covers culpa in contrahendo (Verschulden bei Vertragsverhandlungen), that is, liability for breaches of duty already during the negotiations. The buyer's declaration, common in Anglo-American practice, that they have not relied on any statement outside the contract (non-reliance) likewise does not protect against liability for fraud.

Practical example: entire agreement clause in the sale of a GmbH

A software GmbH is sold to a strategic acquirer. Before notarisation, there are a signed LOI, a confidentiality agreement and several hundred answered questions from the data room. In addition, there is an e-mail from the acquirer under which the founder is to remain managing director for two years. The purchase agreement arranges these documents as follows:

• The LOI is expressly superseded, and its purchase price formula no longer applies. The confidentiality agreement continues until closing.
• The answers from the data room are not warranties. Which information is deemed disclosed and thus excludes warranty claims is determined by the disclosure schedule.
• The promise on the managing director role is converted into a service agreement with a fixed term, which the clause names as a transaction document. The e-mail alone would have helped little, because the presumption of completeness would have worked against the arrangement.
• The service agreement secures employment and remuneration. The appointment as managing director remains, under Section 38(1) GmbHG, in principle revocable at any time; for this case, the service agreement regulates the consequences, such as severance pay.
• Because the service agreement can form a legal unit with the share purchase, the law firm checks whether it is notarised together with it.

In the result, after notarisation only what is in the purchase agreement, in the disclosure schedule and in the expressly named transaction documents applies. For the founder, this is the safer position: her promise is no longer a question of proof but part of the contract.

Distinctions: entire agreement clause, written form clause and warranties

• Written form clause: regulates the form in which later amendments and additions must be agreed. The entire agreement clause, by contrast, concerns arrangements before and at the conclusion of the contract.
• Warranties: contractually assumed liabilities for certain circumstances. Statements outside the contract become enforceable promises only through the warranty catalogue.
• Severability clause: The severability clause (salvatorische Klausel) regulates what applies if a provision is invalid. The entire agreement clause determines which provisions belong to the contract at all.

Common mistakes

• Assuming the US effect. Under German law, side agreements remain provable, and the history of the contract also counts in interpretation.
• Side agreements outside the document. For contracts requiring notarisation, a side letter that is not notarised endangers the entire contract.
• Unintentionally cancelling confidentiality obligations. A blanket superseding formula can capture the confidentiality agreement even though it is still needed until closing.
• Relying on a liability exclusion for fraud. It cannot be validly agreed; knowingly incorrect statements remain a liability risk.
• Transaction documents not listed. If the clause does not name ancillary contracts such as service or trust agreements, the presumption speaks against their belonging to the transaction. Contradictions between the documents then remain unresolved.

Frequently asked questions

Are oral promises binding despite an entire agreement clause?

In some circumstances, yes. The clause only establishes a rebuttable presumption. Anyone who proves that a further arrangement was made and was meant to apply can rely on it, provided no formal requirement such as the notarisation requirement stands in the way.

Does the entire agreement clause cancel a confidentiality agreement?

That can happen if it supersedes all earlier agreements without excepting the confidentiality agreement. Carefully drafted contracts therefore regulate whether it continues to apply.

Does the clause protect the seller from claims for false statements in the pitch deck?

Not in the case of fraud. Anyone who knowingly makes false statements is liable despite the clause. For negligently incorrect statements, it depends on whether the contract effectively excludes claims outside the warranties.

Does the term sheet continue to apply after the investment agreement is signed?

As a rule, no. The investment agreement supersedes the largely non-binding term sheet; usually only expressly named parts such as confidentiality or cost allocation continue to apply.

The Roemer Capital view

In sale processes, we keep a list of all promises made outside the draft contract: in management presentations, in the data room or by e-mail. Before notarisation, we reconcile it with the client's law firm. Afterwards, every promise is in the contract or in an annex, or it has expressly fallen away. In funding rounds, the same applies to deviations between term sheet and investment agreement.

Commercially, we make sure that statements on revenue, customers and planning in presentations match the figures in the data room. The entire agreement clause does not protect against liability for knowingly false statements; consistent documents avoid the dispute about it in the first place.