boilerplate provisions: the seven deadly sins · overview the seven deadly sins of boilerplate...
TRANSCRIPT
Overview
The Seven Deadly Sins of Boilerplate Provisions1. Assignment Clauses2. Attorney’s Fees Clauses3. Force Majeure Clauses4. Third-Party Beneficiary/Affiliate Clauses4. Third-Party Beneficiary/Affiliate Clauses5. Integration Clauses6. Waiver/Modification Clauses7. Notice Clauses
Sin One: Assignment Clauses
Special Issues
1. Employment Agreements2. Restrictive Covenants: Noncompetition, Nonsolicitation and
Confidentiality ProvisionsConfidentiality Provisions3. Merger & Acquisition Issues4. Intra-organizational Issues
Sin Two: Attorney’s Fees
Traps in Drafting Provision1. Most states will not allow a party to draft a one-sided attorney’s
fee provision.
2. Decide whether the provision should also award litigation costs 2. Decide whether the provision should also award litigation costs (e.g., filing fees, deposition fees, expert fees, etc.).
3. Should explicitly refer to attorney’s fees in provision given the strong presumption in favor of the American Rule.
4. Under the law of some jurisdictions, the provision should include “and the court will award attorney’s fees” language.
Sin Three: Force Majeure Clauses
Definition“A contractual provision allocating the risk of loss if performance becomes impossible or impossible or impracticable esp. as a result of an event or effect that the parties could not have anticipated or controlled.”
Black’s Law Dictionary (9th ed. 2009).
Sin Three: Force Majeure Clauses Drafting Issues, Part One
Force majeure clauses are strictly construed by courts and must be precise:
1. Definition of a Force Majeure Event must be broad:� Was September 11th an Act
of War?of War?� Should the provision include
Acts of Terrorism AND Threatened Acts of Terrorism?
2. What type of performance does the clause address and for how long can a non-performing party rely on the clause?
Sin Three: Force Majeure Clauses Drafting Issues, Part Two
2. Time Limits
� How long after the force majeure event does the non-performing party have to inform the other party?
� After a force majeure event, an affected party should review every contract to determine timing issues.
3. Proximate Causation3. Proximate Causation
� Courts generally require the non-performing party to prove the force majeure event proximately caused non-performance
� Should contract establish the amount of proof required under the clause?
4. Does the provision protect both parties or only one?
Sin Three, Force Majeure Clauses: Drafting Issues, Part Three
5. Special Issues� Should force majeure events be excluded from “material adverse
change clauses”?
� Interrelationship between force majeure clauses and “time of the essence” provisions.essence” provisions.
Sin Four: Third-Party Beneficiary/Affiliate Clauses
General Rule The right of a third party to be a third party beneficiary to enjoy rights under a contract typically depends on the intention of the contracting parties.
IssueIssueNeed to specifically address issues of whether other related corporate parties will enjoy benefits of the agreement either through a third-party beneficiary clause or as a result of definitions of affiliate.
Sin Four: Third-Party Beneficiary/Affiliate Clauses
SEC Definitions
Affiliate:An affiliate of, or person affiliated with, a specified person, is a person that directly, or indirectly though one or more intermediaries, controls or is controlled by, or is under common intermediaries, controls or is controlled by, or is under common control with, the person specified.
Control:The term control (including the terms controlling, controlled by and under common control with) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.
Sin Four: Third-Party Beneficiary/Affiliate Clauses
Areas of Particular Concern
1. Manufacturing Agreements
2. Intellectual Property Agreements
Sin Five: Integration Clauses
Properly drafted integration clauses limits interpretation of agreement to “four corners” of document.
Drafting Issues
1. Under the UCC § 2-202, courts are allowed to take course of dealing, trade usage and course of performance under dealing, trade usage and course of performance under consideration in reviewing contract.
Clause should specifically exclude each of the three “magic words.”
2. Generic integration clause does not bar claims for negligent or fraudulent misrepresentation.
May avoid statute by drafting a “non-reliance provision.” Keller v. A.O. Smith Harvestorre Products, Inc., 819 P.2d 69 (Colo. 1991).
Sin Six: Waiver/Modification Clauses
Modification ClausesPurpose
• Attempt to limit the parties’ contractual obligations to the specific terms in the contract. Standard clause generally prohibits subsequent oral modifications.subsequent oral modifications.
Enforceability
• Common law: Courts generally will not enforce anti-oral modification clauses when the oral modification is supported by consideration.
• UCC: Modification clauses are enforceable under UCC if included in the written agreement.
Sin Six: Waiver/Modification Clauses
Modification ClausesRecommended Language:
“All modifications to this Agreement must be in writing and authorized by a designated individual.”and authorized by a designated individual.”
Shifts focus of provision from a statute of frauds issue to agency issue; who has the power to bind the corporation.
Sin Six: Waiver/Modification Clauses
Anti-Waiver Clause
Purpose• Used to overcome general rule which states if a party was not diligent in
enforcing provisions in the contract, the party waived the right to enforce it at a later date.at a later date.
• Useful in preventing allegations of estoppel, waiver or acquiescence. • The anti-waiver clause prevents course of performance from altering
contract.
Drafting Issues• Expressly require waiver to be in writing.• Like modifications, courts frown on anti-waiver clauses. The waiver should
be explicit and clear in identifying what types of conduct do not constitute a waiver.
Sin Seven: Notice Clauses
1. Form of Notice
Hand, Overnight Delivery, Fax, E-mail, US Mail (customary form of notice may vary by industry).
2. Parties to Whom Notice is Directed2. Parties to Whom Notice is Directed
Use of titles for large organizations, use of attention lines rather than to individuals.
3. Additional Copies of NoticeTo inside or outside counsel.
Sin Seven: Notice Clauses
4. Effective Date/Time of Notice
Default “mailbox” rule.
5. Safeguards to Ensure Receipt
Fax receipt, originals to follow e-mail; confirmation of delivery via e-mail may not indicate actual receipt.mail may not indicate actual receipt.
6. Treatment of Notice Provisions by Courts
a) Actual Receipt of Notice -- Some courts have taken a practical approach to interpreting contractual provisions and provided that actual notice, if established, overrides mandatory contractual provisions.
b) Burden of Proof Issues – Typically on party giving the notice (multiple methods of delivery).
Wallace [email protected]@lathropgage.com