Chapter 9 Drafting Contract Boilerplate - Provisions That Can Bite

• Jurisdiction: United States

Chapter 9 Drafting Contract Boilerplate - Provisions That Can Bite
Alex Ritchie^* The Foundation for Natural Resources and Energy Law

ALEX RITCHIE is the Executive Director of The Foundation for Natural Resources and Energy Law and an Adjunct Professor of Law at the University of Colorado School of Law where he teaches oil and gas law. Previously he was an Associate Professor and held the Leon Karelitz Chair in Oil and Gas Law at the University of New Mexico (UNM) School of Law where he taught oil and gas law, advanced oil and gas law, property law, natural resources law, energy law, and business associations. Before joining the UNM law faculty, Alex was Senior Corporate Counsel for Suncor Energy (U.S.A.) Inc., based in Denver where he provided legal support for mergers and acquisitions, supply chain, and environmental, health, and safety (EHS). Alex joined Suncor after 10 years in the Energy and Natural Resources and Corporate Transactions practice groups at Bryan Cave LLP (formerly Holme Roberts & Owen LLP). In addition to numerous Foundation papers and law review articles, Alex is a co-author of the Tenth Edition of Cases and Materials: The Law of Oil and Gas (Foundation Press 2016) (with Martin, Kramer, and Hall). Over the course of his career, Alex has represented clients in oil and gas, mining, corporate, securities, commercial, mergers and acquisitions, real estate, and environmental matters.

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TABLE OF CONTENTS

1. INTRODUCTION

2. ASSIGNMENT

2.1 Successors, Assigns, Heirs, Etc.
2.2 Anti-Assignment Provisions
2.3 What Constitutes an Assignment

2.3.1 Mergers, Operation of Law, Bankruptcy, Etc.
2.3.2 Assignments as Security Interests
2.3.3 Indirect Transfers - Changes of Control

2.4 Liability of Assignors After Assignments - Unintended Novation
2.5 Permitted Assignments; Novation
2.6 Pre-Agreed Permitted Assignees

3. SUBCONTRACTING

4. INTEGRATION; NO ORAL MODIFICATION; NO WAIVER

4.1 Merger and Integration Clauses
4.2 No Oral Amendments, Modifications, Etc.
4.3 No Oral Waiver or Discharge

5. SEVERABILITY; REFORMATION

6. REMEDIES

6.1 Cumulative Remedies
6.2 Limited and Exclusive Remedies
6.3 Specific Performance
6.4 Liquidated Damages

7. CHOICE OF LAW AND CHOICE OF FORUM

7.1 Choice of Law
7.2 Choice of Forum

8. WAIVER OF JURY TRIAL

9. TIME IS OF THE ESSENCE

10. NOTICE

11. THIRD-PARTY BENEFICIARIES

11.1 No Third-Party Beneficiaries
11.2 When There Are Third-Party Beneficiaries

12. COUNTERPARTS

13. INTERPRETATION PROVISIONS

13.1 Negation of Contra Proferentem - Rule of Interpretation Against Drafter
13.2 Import of Headings
13.3 Other Common Interpretation Provisions

13.3.1 Including, Without Limitation
13.3.2 "And" and "Or"
13.3.3 Internal Cross References

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13.3.4 Internal References to the Agreement
13.3.5 Gender Pronouns Are Neutral
13.3.6 singular and Plural Words
13.3.7 References to Agreements
13.3.8 References to Laws
13.3.9 References to a Person
13.3.10 References to Days
13.3.11 Accounting Terms

14. A FEW WORDS ON FORCE MAJEURE

15. CLOSING THOUGHTS

TABLE OF SAMPLE FORM PROVISIONS

S2.1 Successors and Assigns Provision

S2.2 Basic Anti-Assignment/Delegation Provision

S2.3 Expanded Anti-Assignment/Delegation Provision

S2.4 Anti-Assignment Delegation Provision with Continued Liability

S2.5 Permitted Assignment/Delegation Provision with Novation

S2.6 Assignment and Delegation Provision with Standards for Assignees

S3.1 Detailed Pro-Owner Subcontractor Provision

S4.1 Entire Agreement; Integration Provision

S4.2 Amendments and Modifications Provision

S4.3 No Oral Waiver or Discharge Provision

S5.1 Basic Invalid, Illegal, or Unenforceable Savings Provision

S5.2 Invalid, Illegal, or Unenforceable Savings Provision; Essential Terms Defined

S5.3 Basic Reformation Provision

S5.4 Reformation with Negotiation Provision

S6.1.1 Basic Cumulative Remedies Provision

S6.1.2 Expanded Cumulative Remedies Provision

S6.2 Exclusive Remedies Provision

S6.2.1 Broad Consequential Damages Exclusion

S6.2.2 Consequential Damages Exclusion with Carveouts

S6.3 Specific Performance Provision

S7.1 Choice of Law Provision

S7.2 Choice of Forum Provision

S8.1 Waiver of Jury Trial Provision

S9.1 Time Is of the Essence

S10.1 Notice Provision

S11.1 No Third-Party Beneficiaries Provision

S11.2 Third-Party Beneficiaries Provision

S12.1 Counterparts; Effectiveness of Agreement Provision

S13.1 Construction Provision

S13.2 Headings Provision

S13.3 Interpretation Provision

S13.3.1 Including, Without Limitation
S13.3.2 "And" and "Or"
S13.3.3 Internal Cross References
S13.3.4 Internal References to the Agreement
S13.3.5 Gender Pronouns Are Neutral
S13.3.6 Singular and Plural Words
S13.3.7 References to Agreements
S13.3.8 References to Laws
S13.3.9 References to a Person
S13.3.10 References to Days
S13.3.11 Accounting Terms

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1. INTRODUCTION

In the modern economy of instantaneous information and communication, transactional lawyers and contract personnel face shorter and shorter deadlines to draft, review, negotiate, and prepare contracts for execution. on a daily or weekly basis, the business expects the drafter to produce a first draft of the needed agreement on the same or immediately following day. Whether because of time pressures, habit, or carelessness, review and drafting of contract boilerplate often is relegated to untrained lawyers or contract personnel, performed at the wee hours of the night, or simply skipped altogether.

The term boilerplate has its origins around 1882 when the American Press Association was founded in the same building as a sheet-iron factory, referring to their noisy offices as a boilerplate factory. Later the term was used to describe the metal plates provided by syndicates to the newspapers that used identical articles to save time and money.¹ Today lawyers often use the term to refer to standardized non-negotiable contracts that prey upon consumers. For more sophisticated contracts drafted and negotiated by transactional lawyers, however, the term refers to those common, usually short, and seemingly innocuous provisions at the end of the contract, often under a heading entitled "general" or "miscellaneous." These neglected provisions are the subject of this paper.

It examines the legal ramifications of these beastly boilerplate provisions, how they might inflict a stinging and painful bite, and the means to tame the monsters.

2. ASSIGNMENT

2.1 Successors, Assigns, Heirs, Etc.

We begin with assignment. B Corp., which entered into a contract with A Corp., has assigned the contract to C Corp. Assume at this point that the contract is silent on assignment so we must sort out liability for performance under legal default rules. First, A Corp., which had nothing to do with the assignment and simply wanted to work with B Corp., remains bound to perform its obligations to an assignee such as C Corp., whether or not B Corp. actually agreed to the assignment.²

Second, based on the inclination of courts to freely allow alienation and thus maximize the continuous movement of commerce, it can generally be said that rights are freely assignable and performance obligations are delegable, but that an assignor such as B Corp. remains liable to A Corp., the non-assigning party, much like a surety for C Corp.³ Recognized exceptions to the right to freely delegate duties include delegations that are contrary to public policy or where the personal services of the assignor are required for satisfactory performance.⁴

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This leads us to the most basic and yet most underappreciated aspect of assignment - the common law rule that an assignment transfers only the benefits of a contract, not the obligations of performance. The transfer of obligations technically is referred to as a delegation.⁵ That said, the common law is eroding in many ways. The uniform Commercial Code (UCC) and the Restatement (Second) of Contracts (Restatement) both take the more modern approach that an assignment in general terms can operate as both an assignment of rights and a delegation of duties unless the language or the circumstances indicate the contrary.⁶

Now although the assignor B Corp. remains liable after a delegation, absent an express assumption the same may not be true of the assignee C Corp. While the UCC and the Restatement take the approach that an assignment constitutes a promise to perform the assignor's obligations absent an agreement to the contrary, the assumption of duties by the assignee may become a question of interpretation or intent in cases not involving the UCC or in jurisdictions that have not adopted the Restatement.⁷ Maybe A Corp. should demand a copy of an express assumption agreement.

With that background, we turn to the successors and assigns provision, a common and simple provision that may reduce at least some of the uncertainties for A Corp. The successors and assigns provision serves the purpose of restating the common law rule that an assignee is entitled to exercise the rights of its assignor under the contract. But it also may negate the common law requirement of an express assumption by an assignee in jurisdictions that may still require such an assumption.⁸

Consider the following sample provision:

Sample 2.1: Successors and Assigns Provision
S2.1 Successors and Assigns. This Agreement binds and inures to the benefit of each Party and its [heirs, executors, administrators, legal representatives, and] [permitted] successors and [permitted] assigns.

Drafting Considerations:

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• If possible in boilerplate, use the present tense assuming the contract will be read at a future date when a problem arises. At the time of drafting, it makes sense to say, "this Agreement will bind and inure to benefit of [etc.]." But read two years from now after an assignment, the provision should clearly "bind" the parties at that time.
• A "successor" is not a transferee, but the resulting legal entity after a merger, consolidation, bankruptcy, or other legal transformation of a non-natural person. For this reason,

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