ENTIRE AGREEMENT CLAUSE DOES NOT PRECLUDE IMPLIED CONTRACTUAL DUTIES

Bhasin v. Hrynew [2014] 3 SCR 494, 2014 SCC 71 (CanLII)

The Supreme Court of Canada held that parties are not free to exclude general duties of contract law, so entire agreement clauses cannot exclude general duties related to unconscionability and honesty in contractual performance.

If the parties intend to exclude implied terms, drafters should ensure that the entire agreement clause expressly excludes implied terms. A generic entire agreement clause will not indicate the intent of the parties to depart from the basic tenents of honest performance of the contract, so any standards related to the level of honesty in performance should be expressly stated in the agreement.

In Bhasin v. Hrynew, 2014 SCC 71 (CanLII), the Supreme Court of Canada held that at common law there is an organizing principle of good faith that parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily. This means that there is a duty of honesty in contractual performance which is a general duty of contract law which applies to all contracts, and which the parties are not free to exclude. The entire agreement clause cannot exclude those duties which at law are already part of the contract, even if they are not expressed in writing in the contract. The court stated that any modification of the duty of honest performance would need to be in express terms, so generically worded entire agreement clauses would not indicate the intent of the parties to depart from the basic tenets of honest contractual performance. The Court did not state that an entire agreement clause could not exclude implied terms. Entire agreement clauses which expressly exclude implied terms could apply to exclude such implied terms if those terms are not also general duties of contract law.

To read the full case on CanLII, click here,