Monday, May 13, 2013

General Provisions in Contracts: "Miscellaneous" does not mean "Unimportant"


Towards the end of every contractual agreement, including real estate purchase agreements and leases, are certain provisions that often come under the heading of “Miscellaneous” or “General Provisions” and are often referred to as the “boilerplate” provisions.

While these provisions may be “boilerplate” in the sense lawyers insert them into nearly every agreement, they remain important and should not be ignored. Below is a summary of some of these provisions and their purpose:

Entire Agreement – Most agreements have a section captioned “Entire Agreement” or “Integration.” The purpose of this section is to clarify that the entire agreement of the parties is embodied in that written agreement, and prior agreements (verbal or written) are integrated into this current signed contract and no longer have separate force and effect. If a party to the agreement later asserts that there were other agreements between the parties and these  other agreements pre-date of the signed agreement containing an integration clause, then the earlier agreements will be considered merged into the newer agreement and enforceable. If there are other agreements that the parties want to remain in effect concurrently with the new contract, then they must revise this ‘boilerplate’ provision to reflect this.

Binding Effect; Assignment  – Most contracts include a provision that states the agreement will be binding upon the parties’ successors and assigns.  If a company is bought out, you may want to ensure the acquirer is still bound to honor the obligations in the contract.  A separate issue to address is what limitations should be placed on a party’s ability to assign the agreement without the other party’s consent. If a buyer on a real estate purchase agreement intends to create a new entity prior to closing to own the real estate, then it will be important to include language allowing the buyer to assign the agreement to an affiliate.

Severability – This provision is included to ensure the entire contract isn’t voided if a court finds that one or more the provisions are unenforceable.  It allows the unacceptable provisions to be severed by the court and the remaining terms of the contract are still enforceable. However, there may be instances where certain provisions are so important to the purpose of the contract, that if a court strikes out any of those provisions, the parties will not want the contract to continue. In that case, a severability clause should not be included in the agreement.

No Waiver – The purpose of a waiver provision is to make it clear that a party can waive one or more breaches and still be free to act on a similar breach later. Without such a clause, the breaching party could argue before a court that prior waivers of a breach by the other party  created a ‘course of dealing’ that amends the contract and the court might agree.

Governing Law; Venue – Governing law matters in an agreement. The laws in one state may be, and often are, vastly different from the laws in other states.  Which state’s law governs can effect the outcome of a lawsuit.   Some contracts also include venue provisions. Be aware that an agreement to litigate in courts of a specific state, or even a specific county within a state, will typically be upheld. 

Notice – The notice section of a contract dictates how notices under the agreement should be delivered and to what addresses.  It is important to follow the requirements in this section precisely if a formal notice under the agreement is given. For example, don’t email or fax a notice to the other party unless the agreement expressly allows for it.
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