Monday, December 12, 2011

The Miscellaneous Contract Terms: They Aren't Boiler Plate (Part II)

The previous installment discussing the terms generally relegated to the "Miscellaneous" article of the contract reviewed the meaning and importance of the (1) Severability, (2) Notice, (3) Amendments and Waiver, (4) Counterparts and (5) Construction and Headings sections.  See the prior Installment  This installment concludes the discussion of the common "Miscellaneous" provisions by reviewing the (6) Remedies, (7) Third Party Beneficiaries, (8) Assignment, and (9) Integration provisions of an agreement. 

6.  Remedies.  Some contracts will include a separate section with respect to "Remedies" available to the parties in the event of a breach.  The section requires particular attention because, to the extent not addressed elsewhere, it will set forth the remedies the parties can seek for breach and enforcement of the contract.  The section may detail specific damages a party can seek in the event of a breach (for example, liquidated damages), but the other points to be on watch for include:

             a.  Specific Performance:  Does the clause provide the parties the right to seek specific performance of the agreement.  In some circumstances, a party may be equally or even more concerned with the other party actually performing the services or obligations under the agreement and not just obtaining damages for a failure to perform (i.e., breach).  An obvious example might be a contract to purchase a home.  If actual performance is important to you, then make sure the contract includes specific performance as a right in the "Remedies" section, if not in another section  Without the specific performance remedy, a court may only be able to award damages, which may not be satisfactory in the mind of the person seeking performance.

           b.  Equitable Remedies:  The contract may make reference to the right of the parties seek other equitable remedies, like an injunction, in the event of a breach.  This is common, for example, in licensing agreements.  In addition, the clause may state that the parties waive the obligation of posting a bond even if it would otherwise be required as a precondition to seeking the remedy.  The bond provides security to the defendant and a means to obtain damages in the event of a false injunction.  If you are the party against whom the remedy is more likely to be sought -- in the case of a licensing agreement that would be the licensee -- you may not want to agree to waive the necessity of posting the bond.  Again, another reason why you need to read carefully all terms of the contract.         

          c.  Cumulative Remedies:  Some contracts state that the remedies are cumulative and do not require a party to seek one type of remedy before seeking alternative remedy.  You will often see this provision in a promissory note, giving the lender the right to enforce the note in any manner without any precondition that one remedy be sought before another type of remedy.  
7.  Third Party Beneficiaries.  Often the agreement will expressly state that there are no third party beneficiaries.  The section means that no one other than the actual parties to the agreement can claim any rights or seek to enforce any obligations under the agreement.  it may seem an obvious point that only the parties have rights under an contract, but there can be circumstances where a contract may appear to confer a benefit on a third party.  The inclusion of the clause will make clear that the contract should not be read to offer any benefits to anyone else.  Less frequently, the clause can be included for the the opposite purpose and actually confer the benefits of the contract on a third party where the parties desire such an effect.

8.  Assignment/Successors and Assigns.  

          a.  Assignment:  There are some contracts that one or more of the parties may wish to be able to assign and there are others which may not be appropriate for assignment.  If you are contracting for the services of a software developer, for example, you probably spent a great deal of time vetting the developer and therefore would be unhappy if the developer then assigned the contract to someone else.  Thus, you can understand why it is important to set forth whether the contract is assignable or requires consent of the parties.  Another context where assignment can be an issue is the event of a sale of the business where the absence of a right of an assignment can be an issue if the contract is important to the buyer:  one typical example is a license.  Bottom line:  think about whether you would prefer to have a right to consent to the assignment of the contract.

         b.  Successors and Assigns:   The "Successors and Assigns" clause determines whether the successors and assigns of a party or of the parties under the agreement are subject to the rights/benefits and obligations of the agreement. The clause may (i) bind the non-assigning party to perform the contractual obligations in the favor of the assignee, and (ii) bind the assignee to perform the contractual obligations in favor of the non-assigning party.

9. Integration/Entire Agreement
The "Entire Agreement" or "Integration" clause essentially provides that unless set forth in the contract an obligation, right, or term is not considered part of the agreement.  The clause incorporates the concept found in the parol evidence rule that the final agreement as made by the parties supercedes any terms that may have been discussed in prior negotiations.  A party cannot make an argument that it negotiated for a right if it is not included in the contract because the parties (and courts) must look to the "four corners" of the contract -- of course there are exceptions to this rule but the Integration concept incorporates the parties' intention that the contract is the final expression of the terms agreed to by the parties.     

While you should at least generally understand the meaning of these Miscelleaneous provisions, if there is just one take away it should be that they are not simply boiler plate just because they are found at the end of the contract.  As with any section of a contract, the ultimate meaning and effect of each of these sections depends on how they are drafted, and therefore each clause should be read with the same scrutiny applied to the other terms of the agreement.  

Disclaimer:  This Article is intended for informational purposes and does not constitute legal advice nor create any attorney-client relationship.

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