Wednesday, December 7, 2011

The Miscellaneous Contract Terms: They Aren't Boiler Plate

A prior post discussed the concept that notwithstanding the fact that the governing law and forum selection clauses are usually at the end of a contract they should be reviewed and negotiated with the same emphasis as the business terms.  In the same vein, there are several provisions that will often fall under the "Miscellaneous" section or article of a contract, and therefore you may (erroneously) believe they contain boiler plate language not requiring much attention.  To be clear, do not ignore or give little attention to these miscellaneous contractual provisions simply because they come at the end of the agreement.  This two-part discussion reviews the meaning and importance of the "Miscellaneous" sections of a contract.  In this instalment, the (1) Severability, (2) Notice, (3) Amendments and Waiver and (4) Counterparts, and (5) Construction/Headings clauses are discussed, and the next installment reviews the (6) Remedies, (7) Third Party Beneficiaries, (8) Assignment, and (9) Integration provisions of an agreement.    

1.  Severability.  What happens to the contract if the parties included a provision that is later found unenforceable or invalid under law?  If the agreement includes a Severability clause, in most cases the remainder of the contract will be saved.  The provision is important to prevent the entire contract from being rendered void or unenforceable.  The Severability provision will state that the remainder of the contract and the application of the deficient provision to other persons or circumstances shall not be affected and shall be enforced to the extent permitted by law so long as the economic or legal substance of the transactions is not affected in any manner materially adverse to any party.  Further, if a term or other provision is invalid or unenforceable, make sure the Severability clause states that the parties will negotiate in good faith to modify the agreement to cause the  original intent of the contract is fulfilled to the greatest extent possible.

2. Notice.  The Notice clause defines the method(s) for providing notice to the parties.  OK, that is obvious, but what you include in that provision can actually avoid the failure to provide or receive timely notice under terms of a contract. 

         Example:  You enter into a contract with a printer for the printing a brochure.  The contract includes a provision requiring you to give the printer ten days notice from the date of receipt of draft brochure of any defects.  If you do not provide notice of any defects, the printer will then make 1000 copies.  You receive the brochure by overnight delivery on December 12, 2011.  You find a defect and send the printer an email on December 23, 2011.  He calls and notifies you that it is too late, you need to take delivery of the 1000 brochures, and you owe the full fees under the contract.  You call back and tell him you understood ten days to mean ten business days, and so your notice was timely.  Problem:   the contract does not say business days, and so you made the wrong assumption.

Issues like the above regularly occur, and so here are good ideas for the Notice provision: 

                 (a) all notices must be in writing (not oral);

                 (b) when referring to days, state whether this means business or calendar days;

                 (c) if time periods run from delivery of a product, service or notice, define the permissible delivery methods (i.e., regular mail, certified with return receipt, fax, email, overnight, personal delivery) and when delivery is deemed to have taken place (regular mail:  "x" days after mailing in the US or "y" days outside the US; fax:  upon confirmation of successful transmission; overnight mail:  upon proof of delivery; and personal delivery:  upon proof of personal delivery); 

                 (d) as a precaution, require that copies of all notices to be sent to your attorney; and
                 (e) expressly state the addresses for delivery, and that if the address changes that the party must notify the other parties to the agreement.
3.  Amendments and Waiver.  Contracts should include a provision addressing how (a) amendments to the contract can be made, and (b) provisions/rights in the agreement can be waived by a party.

                (a) Amendment -- The contract should state that any amendments must be in writing signed by all the parties. 

                (b) Waiver -- The provision should state that that:  No waiver by any party of any default, misrepresentation, or breach of warranty or covenant, whether intentional or not, shall extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant or affect any rights arising as a result of any prior or subsequent occurrence.

4.  CounterpartsThe section entitled "Counterparts" allows for the agreement to be signed separately by the parties on different copies of the signature page, and will generally include that delivery of the signature page can be accomplished by fax. 

            Sample clause:  "This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument."

5. Construction/Headings

              (a)  The "Construction" provision provides the rules of interpreting the contract in the event of the dispute, including an important concept that the parties have deemed the contract to have been jointly drafted and therefore no presumption or burden of proof should be deemed to arise favoring or disfavoring any party by reason of being labeled the drafter of the agreement.  Why is this important?  Without it, all the parties would either need to sit in a room and sign the document or the one, original signature page would need to be circulated to all parties, who would each be required to sign on the same page.
            (b)  The "Headings" clause precludes any party from giving any meaning to the headings, and therefore the headings are simply to facilitate organization of the document.

The next installment discusses the meaning and importance of several other Miscellaneous contract provisions, including the Remedies, Third Party Beneficiaries, Assignment, and the Integration provisions.Disclaimer:  The information in this blog is for discussion only and does not constitute legal advice nor create any attorney client relationship.  You are urged to consult with an experienced lawyer concerning your business/corporate law matters. 

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