Navigating Boilerplate In Acquisitions
By
Current
2011
Justin J. Dalton
Dalton Law, PLC
Email: jd@daltonlawplc.com
_____________________________________________________________________________________________
THIS OUTLINE IS DESIGNED TO PROVIDE GENERAL INFORMATION WITH REGARD TO THE SUBJECT MATTER IT
COVERS. IT IS NOT AND SHOULD NOT BE USED AS A SUBSTITUTE FOR INDEPENDENT LEGAL COUNSEL.
Navigating Boilerplate in Acquisitions
2011
PART I: INTRODUCTION
This outline is intended to serve a twofold purpose: (i) to give the reader a form bank of
boilerplate provisions for use in Acquisition Agreements, and (ii) to highlight practice considerations and
case precedent that shapes this boilerplate.
For purposes of this outline, the term “Acquisition Agreement” or “Acquisition” refers to a
transaction for the sale and purchase of an entity (e.g. stock purchase agreement, membership unit
purchase agreement) or a transaction for the sale and purchase of all or substantially all of its assets
(asset purchase agreements). To keep this outline relevant to the broadest audience, the boilerplate
discussed applies to Acquisitions of public and private entities alike.
Black’s Law Dictionary defines “boilerplate”, in part, as “[r]eady-made or all-purpose language
that will fit in a variety of documents.”1 Here, in the Acquisition context, it is the recycled “General” or
“Administrative” language pasted into the back of the document often with little consideration and even
less negotiation. There are several reasons why that is the case:
A) Drafting Efficiency. The most obvious reason is speed combined with accuracy
make boilerplate efficient. “Drafting efficiency has two components: reduction in
the cost associated with the mechanical task of recording the contract terms, and
reduction of the expected cost of errors in its formulation.”2
B) Judicial Precedent. Court decisions limit uncertainty as to how a given provision
may be construed and that, too, favors boilerplate. “This reduction in uncertainty
reduces the expected costs of corporate planning and of litigating disputes
regarding a contract term.”3 Stated another way, “the sheer act of having
interpreted a clause in a way that allows for predictable application in the future
adds value to that clause.”4
C) Familiarity to Lawyers, Other Professionals, and Investment Community. The flow
of a deal and ancillary transaction costs (e.g. accounting fees) are additional
incentives for using boilerplate. “To the extent a term requires professional
advice—from lawyers, accountants, investment bankers, or others—the use of a
common term may reduce the costs and improve the quality of such advice because
many of these professionals will be familiar with the term from past experience.”5
D) Deal Fatigue and Client Disinterest. Clients and lawyers can find themselves spent
after negotiating essential terms of an Acquisition. The parties may not have the
1
Black’s Law Dictionary 136 (Bryan A. Garner ed., 7th ed., West 1999).
Marcel Kahan & Michael Klauser, Standardization and Innovation in Corporate Contracting (or “The Economics of Boilerplate”)
83 Va. L. Rev. 713, 721 (1997); see also Melvin Aron Eisenberg, The Limits of Cognition and the Limits of Contract, 47 Stan. L. Rev
211, 243 (1995) (“Faced with preprinted terms whose effect the form taker knows he will find difficult or impossible to fully
understand, which involve risks that probably will never mature, which are unlikely to be worth the cost of search and
processing, and which probably aren’t subject to revision in any event, a rational form taker will typically decide to remain
ignorant of the preprinted terms.”).
3 Michelle E. Boardman, Contra Proferentem: The Allure of Ambiguous Boilerplate, 104 Mich. L. Rev. 1105, 1107 (2006).
4 Kahan & Klauser, 83 Va. L. Rev. at 722.
5 Id. at 723.
2
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interest or stamina to haggle over and draft a group of general provisions from
scratch. That is perhaps the most common reason boilerplate is relegated to an
afterthought status.
For as many reasons there are to use boilerplate there are just as many associated hazards of
doing so. To illustrate:
A) Ambiguity Construed Against Boilerplate Drafter. Iowa will “generally construe
ambiguous boilerplate language against the drafter.”6
B) Cut & Paste Errors7. These risks are of two categories. First, there are the clerical or
grammatical errors. Boilerplate that is recycled from a form bank may reference a
wrong Section or Paragraph number, identify a wrong entity or person as a party, or
be riddled with archaic grammatical blunders that go unchecked. The second
category of risks is based on incorporation error. If a block of boilerplate provisions
are cut and pasted into a document without much scrutiny, there is always the risk
that at least one of the provisions does not fit the contours of the deal. Its
incorporation will lead to confusing outcomes that may prove client-adverse.
C) Ethics Considerations. Every lawyer should have a basic understanding of his/her
ethical obligation to maintain attentiveness to a client representation.8 That
obligation surely extends to the selection, review, editing, and incorporation of
boilerplate. The fact a client may have no pre-closing desire to read (let alone
understand) these provisions or the fact that a lawyer may simply be fatigued after
hammering out essential terms of the bargain will not relieve a lawyer from his/her
ethical obligation to remain attentive to the boilerplate used. If nothing else, stakes
are just as high for afterthought boilerplate as they are for negotiated essential
terms. A common theme that emerges in case law is that boilerplate and essential
terms generally carry the same legal force and effect. That holds true even if a
client had not read or otherwise assented to the boilerplate.
If a party fails to read or understand adverse boilerplate and enters the agreement anyway, it
has limited redress under Iowa law. To attack the boilerplate on its face9, the party must argue it is
unconscionable. To succeed, it will have to prove (1) assent, (2) unfair surprise, (3) notice, (4) disparity
of bargaining power, and (5) substantive unfairness.10 Most of the challenging parties in these cases
6
Peak v. Adams, 799 N.W.2d 535, 548 (Iowa 2011). However, the rule is “inapplicable where the instrument is prepared with
the aid and approval, and under scrutiny of legal counsel for both contracting parties.” Kinney v. Capitol-Strauss, Inc., 207
N.W.2d 502, 504 (Iowa 2003) (citation omitted).
7 Courts are not immune to cut & paste errors. In Wells Fargo Financial Leasing, Inc. v. Obra Homes, Inc., 782 N.W.2d 169 (Iowa
App. 2010), the district court ruled, “In determining whether summary judgment is proper, the Court must view the pleadings
and other documents in the manner most favorable to the non-moving parties, which in this case is the plaintiff.” This was an
error because it was the plaintiff that filed the motion. The appellate court concluded that the district court made a harmless
error incorporating “boilerplate summary judgment law”. Id.
8 “A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill,
thoroughness, and preparation reasonably necessary for the representation.” Iowa Code of Professional Responsibility, Rule
32:1.1 Competence.
9 There may be other legal grounds to challenge boilerplate (e.g. traditional defenses to contract formation, lack of
consideration, mutual mistake, fraudulent or negligent misrepresentation, etc.), but to attack the language at face value, a
party must avail itself to the doctrine of substantive unconscionability.
10
Denlinger v. Kenwood Records Management, 2007 WL 4553050, 1 (Iowa App. 2007).
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argue that because they had not read the boilerplate clauses at issue, it cannot be said they actually
assented to them. Iowa courts disagree. These courts adopt Professor Llewellyn’s impressions on this
subject:
Instead of thinking about ‘assent’ to boiler-plate clauses, we can recognize that so far as
concerns the specific, there is no assent at all. What has in fact been assented to, specifically,
are the few dickered terms, and the broad type of transaction, and but one thing more. That
one thing more is a blanket assent (not a specific assent) to any not unreasonable or indecent
terms ... which do not alter or eviscerate the reasonable meaning of the dickered terms. The
fine print which has not been read has no business to cut under the reasonable meaning of
those dickered terms which constitute the dominant and only real expression of agreement....11
In short, the assent issue turns on whether the challenged boilerplate is an unreasonable or indecent
term or whether it alters or eviscerates the terms of the Acquisition Agreement to which the parties
specifically agreed. This broad interpretation of assent makes it difficult to unwind adverse boilerplate
once it is in force, which is all the more reason it deserves adequate attention pre-closing.
PART II: ORDER OF OUTLINE; GENERAL ACKNOWLEDGEMENT
Part III of this outline contains a set of boilerplate provisions marked Sections 1.1 to 1.20. One
or more alternative provisions are given below each Section. The intent is to give a range of optional
language. In several Sections, Plain English drafting is shown as a contrast to more conventional
boilerplate. And finally, under those alternative provisions, practice pointers and relevant case law
highlights follow.
As one final prefatory matter, a general acknowledgment is in order. Negotiating and Drafting
Contract Boilerplate, (Tina L. Stark et al eds., ALM Publishing 2003), is a practice-friendly resource
packed with sound analysis of boilerplate far beyond the scope and depth of this outline. Having turned
to it often in my own practice, I acknowledge much of my thoughts on the subject of boilerplate
originated from that resource. Accordingly, as a matter of full disclosure, I credit it for its original
content and point the reader back to it for additional study. (It also contains a set of well drafted, form
boilerplate).
Part III: FORM BOILERPLATE
Article I
General
1.1
Jurisdiction. Each of the parties submits to the exclusive jurisdiction of any state or
federal court sitting in the State of Iowa, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each party also agrees not to bring any action or proceeding arising out
of or relating to this Agreement in any other court. Each of the parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond,
surety or other security that might be required of any other party with respect to any such action or
11
C & J Fertilizer, Inc. v. Allied Mutual Insurance Co., 227 N.W.2d 169, 175 (Iowa 1975) (quoting K. Llewellyn, the Common Law
Tradition-Deciding Appeals 370 (1960)).
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proceeding. Any party may make service on any other party by sending or delivering a copy of the
process to the party to be served. The parties agree that either or both of them may file a copy of this
paragraph with any court as written evidence of the knowing, voluntary and bargained agreement
between the parties irrevocably to waive any objections to venue or to convenience of forum.
Alternative 1 – Jurisdiction (abbreviated): Jurisdiction. Any action by either party
hereunder must be brought only in the District Court in and for __ County, Iowa. The
parties consent to the exclusive jurisdiction of such court and waive any claim of lack of
jurisdiction or venue.
Alternative 2 - Jurisdiction: Jurisdiction. Each of the parties hereto hereby (i)
irrevocably consents and submits to the sole exclusive personal jurisdiction and venue of
the state and federal courts located in Iowa (and of the appropriate appellate courts
from any of the foregoing) in connection with any proceeding directly or indirectly
arising out of or relating to this Agreement; provided that a party to this Agreement
shall be entitled to enforce an order or judgment of such court in any United States or
foreign court having jurisdiction over the other party hereto, (ii) waives, to the fullest
extent permitted by law, any immunity from jurisdiction of any such court or from any
legal process therein, (iii) agrees not to commence any proceeding other than in such
courts and (iv) agrees that service of any summons, complaint, notice or other process
relating to any proceeding in connection herewith may be effected in the manner
provided for the giving of notice hereunder as set forth in Section _ .
Alternative 3 – Iowa Court Approved: Any action in regard to this agreement or arising
out of its terms and conditions may be instituted and litigated in the Iowa District Court
for _ County, Iowa. [Enter party or parties] consents to the jurisdiction of such court and
agrees that service of process as provided by the statutes and rules of procedure of Iowa
shall be sufficient.12
Practice Pointers:
A. Iowa law regarding forum selection turns on two separate issues. The first is
whether a clause purports to take jurisdiction away from a court that otherwise has
it based on conduct of a given party.13 In those cases, Iowa law holds that a court is
not bound by a forum selection clause, but it will give it consideration if it is “fair”.14
In that regard, Iowa precedent is in line with the majority position across the nation.
The second issue arises when a court only has jurisdiction over a party by way of a
forum selection clause and that jurisdiction is challenged. In this context, Iowa law
12
See EFCO Corp. v. Norman Highway Constructors, Inc., 606 N.W.2d 297, 299 (Iowa 2000).
See e.g. Davenport Mach. & Foundry Co., A Division of Middle States Corp. v. Adolph Coors Co., 314 N.W.2d 432, 435 (Iowa
1982) (Stating, “The issue [was] not whether courts in [the state chosen in the contract] had jurisdiction under the clause; it
[was] whether the clause [deprived] other courts of jurisdiction they would otherwise possess”).
14 “[W]e hold that clauses purporting to deprive Iowa courts of jurisdiction they would otherwise have are not legally binding in
Iowa. We further hold, however, that under a motion to dismiss an Iowa action without prejudice on the ground of forum
nonconveniens, such a clause, if otherwise fair, will be given consideration along with the other factors presented, in
determining whether the Iowa court should decline to entertain the suit.” Id. at 437.
13
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supports jurisdiction over the party on the basis that personal jurisdiction is an
individual right that can be consented to in a bargain.15
B. Because Iowa courts have latitude in determining jurisdiction despite a forum
selection clause, a party-litigant may attempt to raise a forum non conveniens
argument notwithstanding the fact it previously signed off on the clause. That is
why it is a best practice to include a waiver of that claim in the forum selection
clause.
C. A drafter should first consider whether the forum selection clause should be
exclusive or non-exclusive. Where the clause is non-exclusive, the parties consent
to a specific jurisdiction and also retain the right to bring a dispute in any other
competent jurisdiction.
D. If the forum selection clause includes federal courts, a drafter should advise the
client that these courts have limited jurisdiction (i.e. federal question, diversity) that
cannot be altered by contract.
1.2
Amendment and Waiver. This Agreement may not be amended, a provision of this
Agreement or any default, misrepresentation or breach of warranty or agreement under this Agreement
may not be waived, and a consent may not be rendered, except in a writing executed by the party
against which such action is sought to be enforced. Neither the failure nor any delay by any Person in
exercising any right, power or privilege under this Agreement will operate as a waiver of such right,
power or privilege, and no single or partial exercise of any such right, power or privilege will preclude
any other or further exercise of such right, power or privilege or the exercise of any other right, power
or privilege. In addition, no course of dealing between or among any entity having any interest in this
Agreement will be deemed effective to modify or amend any part of this Agreement or any rights or
obligations of any entity under or by reason of this Agreement. The rights and remedies of the parties
to this Agreement are cumulative and not alternative.
Alternative 1 – Unilateral Amendment Only: Amendments. Seller reserves the right to
change Section_ at any time (including by amending any of its provisions, adding new
provisions, or deleting or modifying existing provisions) on at least _ days notice to
Buyer. Except as provided in the foregoing sentence, this Agreement may not be
modified, amended, or otherwise changed without an express agreement in a writing
signed by the parties’ respective authorized representatives. An e-mail does not
constitute such a signed writing.
Alternative 2 – Waiver Only: Waiver. Either party’s failure to exercise any of its rights
under the Agreement, its delay in enforcing any right, or its waiver of its rights on any
occasion, shall not constitute a waiver of such rights on any other occasion. No course of
dealing by either party in exercising any of its rights shall constitute a waiver thereof. No
waiver of any provision of this Agreement shall be effective unless it is writing and signed
by the party against whom the waiver is sought to be enforced.
15
“Because the requirement of personal jurisdiction represents first of all an individual right, it can, like other such rights, be
waived.” EFCO Corp. at 299 (citation omitted).
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Alternative 3 – Amendment; Extension; Waiver: Amendment, Extension; Waiver. Any
Party may, to the extent legally allowed, (a) extend the time for the performance of any
of the obligations or other acts of the other Party, (b) waive any inaccuracies in the
representations and warranties made to such Party contained in this Agreement, and
(c) waive compliance with any of the agreements or conditions for the benefit of such
Party contained in this Agreement. Any such extension or waiver by any Party shall not
operate or be construed as a further or continuing extension or waiver. Any agreement
on the part of a Party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such Party.
Practice Pointers:
A. Despite even the best draftsmanship, absolute confidence in this “no oral
modification” boilerplate may be misplaced. An unwary party can assent to an oral
modification by word or conduct, and in doing so, undo the legal effect of this
clause.16 In a bilateral contract scenario, the law boils down to the freedom of
contract: if two parties can agree to a clause, they can equally unwind it. If,
however, no mutual assent to an oral modification is proven, a party may still cancel
the effect of this clause if it can satisfy the elements of equitable or promissory
estoppel.17
B. The main wrinkle to the waiver provisions has to do with whether the waiver
pertains to a right of the waiving party, a condition otherwise imposed upon the
non-waiving party, or both. A drafter should be sure to note the differences or an
unintended consequence may result. These waiver clauses are subject to the same
estoppel arguments levied against the “no oral modification” boilerplate.
1.3
Notices. All notices, demands and other communications to be given or delivered under
or by reason of the provisions of this Agreement must be in writing to the address indicated below or to
such other address as either party shall have furnished to the other in writing in accordance herewith:
16
If to Buyer:
Attn:
With a copy to:
Attn:
If to Seller:
Attn:
With copy to:
Attn:
“A written contract can be amended by oral agreement and a provision in a written contract that it can be modified or
rescinded only in writing is ineffective (subject, of course, to the doctrine of consideration and the statute of frauds).” Whalen
v. Connelly, 545 N.W.2d 284, 291, 545 N.W.2d 284 (Iowa 1996)(citing Restatement (Second) of Contracts § 283 cmt. b (1981)
and E.A. Farnsworth, Contracts § 7.6, at 492-93 (2d ed. 1990)).
17
“The rule followed by the courts generally, with some authority to the contrary, is that a written contract not required by
law to be in writing may be modified by a subsequent oral agreement even though it provides it can be modified only by a
written agreement. Such a stipulation in the original contract may become inoperative because of modification, recision, waiver
or estoppel, or an independent contract.” Humiston Grain Co. v. Rowley Interstate Transp. Co., Inc. 483 N.W.2d 832, 834 (Iowa
1992).
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Alternative 1 – Notices (Flexible): Notices. All notices and other communications
required or permitted under this Agreement may be given by any of the following means
reasonably available to either or both parties: via email (to last known email address),
via separate written notice sent by U.S. mail or other courier (to last known address), or
via facsimile transmission (to last known facsimile number). Any such notice delivered as
provided above will be deemed to have been given (a) when sent and receipt has been
confirmed, if by email or facsimile, or (b)three business days after it is sent by U.S. mail,
postage prepaid, or (c) one business day after it is sent by overnight courier.
Alternative 2 – Notices (Rigid): Notices. Unless otherwise provided in this Agreement,
all notices or demands relating to this Agreement must be in writing and be personally
delivered or sent by registered or certified mail (postage prepaid, return receipt
requested), overnight courier, electronic mail (at such email addresses as a party may
designate in accordance herewith), or telefacsimile. In the case of notices or demands to
Buyer or Seller, as the case may be, they shall be sent to the respective address set forth
below:
If to Seller: with copies to:
If to Buyer: with copies to:
Either party may change the address at which it is to receive notices hereunder, by notice
in writing in the foregoing manner given to the other party. All notices or demands sent
in accordance with this Section __, shall be deemed received on the earlier of the date of
actual receipt or 3 business days after the deposit thereof in the mail; provided, that (a)
notices sent by overnight courier service shall be deemed to have been given when
received, (b) notices by facsimile shall be deemed to have been given when sent (except
that, if not given during normal business hours for the recipient, shall be deemed to have
been given at the opening of business on the next business day for the recipient) and (c)
notices by electronic mail shall be deemed received upon the sender’s receipt of an
acknowledgment from the intended recipient (such as by the “return receipt requested”
function, as available, return email or other written acknowledgment).
Practice Pointers:
A. The obvious point of this paragraph is to define how communications are to be sent
and deemed received by the parties. Those communications may be notices or
demands or others. When fine tuning this language, the drafter should understand
if there are specific instances referenced in the Acquisition Agreement that call for
specific notice or communication of some form. Those may be specifically
referenced in the notice clause. In many cases, those provisions will create
condition precedents that must be satisfied before the non-sending party is
obligated to perform.
B. A good practice is to include language to define when a party is deemed to be in
receipt of a communication, e.g. “3 business days after the deposit thereof in the
mail”. This may prove most helpful in the event a recipient refuses to acknowledge
receipt of a notice hoping to dodge the adverse consequences of doing so.
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C. The notice provision could also add a requirement that only specific persons or
titled positions are authorized to send a communication and that the
communication must bear a signature.
1.4
Assignment. Neither this Agreement nor any of the rights, interests or obligations under
this Agreement may be assigned or delegated by any party to this Agreement without the prior written
consent of the other parties to this Agreement, except that Buyer may assign any of its rights under this
Agreement to one or more Affiliates of Buyer, so long as Buyer remains responsible for the performance
of all of its obligations under this Agreement. Subject to the foregoing sentence, any purported
assignment is void, and as such, the assignee will not acquire any rights from the purported assignment.
Subject to this paragraph, this Agreement and all of the provisions of this Agreement will be binding
upon and inure to the benefit of the parties to this Agreement and their respective successors and
permitted assigns.
Alternative 1 – Change of Voting Control; Release: Assignment. Neither party may
assign or transfer this Agreement, by operation of law or otherwise, without the prior
written consent of the other party. For purposes of this Agreement, any transfer of
voting control of a party or its parent will be considered an assignment or transfer
subject to this paragraph. Upon any assignment, the non-assigning party shall release
the assigning party from any further liability or obligation, except for the assigning
party’s obligations under Paragraphs _.
Alternative 2 – Assignment by Parent to Sub: Assignment. This Agreement may not be
assigned (whether pursuant to a merger, by operation of law, or otherwise) or delegated
without the express written consent of both parties, except that each party may (in its
sole and absolute discretion) assign all or any of its rights to any of its wholly owned
subsidiaries; provided, however, that no such assignment shall relieve the assigning
party of its obligations hereunder.
Alternative 3 – Assignment to Affiliate: Assignment. Neither this Agreement nor any
right, remedy, obligation or liability arising hereunder or by reason hereof nor any of the
documents executed in connection herewith may be assigned or delegated by either
party without the consent of the other party; provided, however, that the parties may
assign their respective rights hereunder, without the consent of the other, to any
Affiliate.
Practice Pointers:
A. The general default rule is that parties are able to freely assign their rights and
delegate their duties under a contract. If a party wants to control who it does
business with, it needs to do so in this assignment clause. A drafter has to
appreciate the difference between an assignment and a delegation to make the
most of this clause. The two are often muddled as one in the same.18 An
assignment occurs when a party transfers its right to receive performance to a third-
18
One Iowa court highlighted the clouded use of “assignment” and “delegation”, stating, “[o]ften, parties do not distinguish
between these words of art.”Barker Dev. Co. v. Unibank & Trust Co., 314 N.W.2d 175, 178 (Iowa App. 1981).
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party.19 The transfer extinguishes the right of a party to receive performance by
granting it to another, either in whole or in part. A delegation, in contrast, occurs
when a party appoints another to perform its own obligation(s).20 Another
difference is that an assignment does terminate the assignor’s right to receive
performance, but a delegation does not relieve the delegator of liability for the
delegated performance.
B. The default rule is that if a clause does not distinguish between assignment and
delegation, the courts will presume the permitted assignment includes delegation of
any unperformed duties.21
C. If a party is willing to consent to an assignment to a subsidiary or affiliate, then a
good practice is to name that entity.
1.5
No Third-Party Beneficiaries. Nothing expressed or referred to in this Agreement
confers any rights or remedies upon any Person that is not a party or permitted assign of a party to this
Agreement.
Alternative 1: No Third-Party Beneficiaries. This Agreement does not and is not intended
to confer any rights or benefits on any person that is not a party hereto and none of the
provisions of the Agreement are enforceable by any person other than the parties
hereto, their successors and permitted assigns.
Alternative 2 – Subsidiary as TPB: Intended Third-Party Beneficiary. Seller’s subsidiary,
[Legal name of entity], is an intended third-party beneficiary of this Agreement and may
enforce its provisions as if a party hereto.
Alternative 3 – Plain English: No Third-Party Beneficiaries. Nothing in this Agreement
is intended to provide any person or entity other than the parties any rights or remedies,
and the parties do not intend for any third parties to be third party beneficiaries of this
Agreement.
Alternative 4 – Hybrid: No Third-Party Beneficiaries; Exception. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto (and their successors
and permitted assigns), and nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person (including any director, officer or employee of
either party) any right, benefit or remedy of any nature whatsoever under or by reason
19
An assignment is a transfer of rights. “By an assignment, the obligee as assignor ... transfers to an assignee ... a right that the
assignor has against an obligor.” Midland Mut. Life Ins. Co. v. Mercy Clinics, Inc., 579 N.W.2d 823, 833 (Iowa 1998) (quoting E.
Allan Farnsworth, Farnsworth on Contracts § 11.1, at 58 (1990). “In such transfers, the assignee assumes the rights, remedies
and benefits of the assignor.” Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524, 533 (Iowa 1995).
20 “Duties or liabilities under a contract, however, are not assigned, they are delegated, a concept distinct from assignment.”
Midland Mut. Life Ins. Co., 579 N.W.2d at 833. “An obligor's empowering of another to perform the obligor's duty is known as
a delegation of the performance of that duty.” Id. (quoting Farnsworth § 11.1, at 58-59).
21 The Iowa Supreme Court has approved the Restatement’s default position: “The effect of the failure to distinguish between
these terms is addressed by the Restatement: Unless the language or the circumstances indicate the contrary, ... an assignment
of “the contract” or of “all my rights under the contract” or an assignment in similar general terms is an assignment of the
assignor's rights and a delegation of his unperformed duties under the contract. Id. (quoting Restatement (Second) of Contracts
§ 328(1) (1979)).
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of this Agreement, other than the provisions of Section _ (which are intended to be for
the benefit of the persons covered thereby or the persons entitled to payment
thereunder and may be enforced by such persons).
Practice Pointers:
A. Iowa law adopts the Restatement (Second) of Contracts position on third-party
beneficiaries22, which in essence vests contractual enforcement rights only in
intended third-party beneficiaries and denies rights to incidental third-party
beneficiaries.23 This clause is used to create or eliminate24 intended third-party
beneficiaries.
B. If a third-party beneficiary is created, a drafter should consider whether the
signatories wish to reserve the right to amend the contract without the consent of
the third-party. If so, then additional language should be added to that end.
1.6
Severability. Whenever possible, each provision of this Agreement will be interpreted in
such manner as to be effective and valid under applicable law, but if any provision of this Agreement is
held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
Alternative 1 – Plain English: Severability. The parties intend every provision of this
Agreement to be severable. If any part of this Agreement is not enforceable, the
remaining provisions will remain valid and enforceable.
Alternative 2 – Plain English: Severability. If any provision of this Agreement is held by
a court of competent jurisdiction to be illegal or unenforceable that provision shall be
replaced by an enforceable provision most closely reflecting the parties’ intentions, with
the balance of the Agreement remaining unaffected.
Alternative 3 - Long Form. (Most Defined): Severability. If any term or other provision
of this Agreement is determined invalid, illegal or incapable of being enforced by any
rule of law, or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties agree that
the court making such determination will have the power to limit the term or provision,
to delete specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and this
22
See Midwest Dredging Co. v. McAninch Corp., 424 N.W.2d 216 (Iowa 1988) (“we now find reason to adopt Restatement
(Second) of Contracts section 302 (1981) relating to third-party beneficiaries).
23 See RPC Liquidation v. Iowa Dept. of Transp., 717 N.W.2d 317 (Iowa 2006) (“[a] third party who is not a promisee and who
gave no consideration has an enforceable right by reason of a contract made by two others ... if the promised performance will
be of pecuniary benefit to [the third party] and the contract is so expressed as to give the promisor reason to know that such
benefit is contemplated by the promisee as one of the motivating causes of his making the contract.”) (citations omitted).
24 The court in RPC Liquidation observed, “[w]hen a contract expressly negates the creation of third-party beneficiaries, we have
rejected the claim that such status exists.” Id. at 320.
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Agreement will be enforceable as so modified so long as the economic or legal substance
of the Agreement is not affected in any manner materially adverse to either party. In the
event such court does not exercise the power granted to it in the prior sentence, the
parties shall negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in order that
this Agreement be consummated as originally contemplated to the fullest extent
possible.
Alternative 4: Severability. If any court of competent jurisdiction determines that any of
the covenants or agreements contained in this Agreement, or any part thereof, are
unenforceable because of the character, duration or geographic scope of such provision,
such court shall have the power to reduce the duration or scope of such provision, as the
case may be, and, in its reduced form, such provision shall then be enforceable to the
maximum extent permitted by applicable law.
Practice Pointers:
A. Courts will not enforce illegal agreements. To save a contract from being rendered
unenforceable as a whole, this clause allows offending language to be discarded
while preserving the balance of the deal.
B. Under Iowa law, courts look at whether an agreement is indivisible and entire25 or
divisible and separate.26 The resolution depends on a number of tests, but the
determining factor is the parties’ intent27, and this provision is used as evidence of
such intent.
C. The general assumption behind this clause is that the parties are willing to part with
ancillary aspects of the transaction as long as the core stays intact. That may
change if the offending clause is itself part of the core. In these situations, a party
may not wish to incorporate a severability clause. Core clauses warranting further
consideration may include indemnity, choice of law, guaranties, releases, and
noncompetition.
1.7
Complete Agreement. This Agreement contains the complete agreement between the
parties and supersedes any contrary prior understandings, agreements or representations by or
between the parties, written or oral. Each party acknowledges that the other has made no
representations, warranties, agreements, undertakings or promises except for those expressly set forth
in this Agreement or in agreements referred to herein that survive the execution and delivery of this
Agreement.
25
“[A] contract constitutes a single agreement when, by its terms, nature, and purpose, it contemplates that each and all of its
parts and the consideration stated shall be common each to the other and interdependent.” Equity Control Associates, Ltd. v.
Root, 638 N.W.2d 664, 671 (Iowa 2001) (citation omitted).
26 “[A] divisible or separable contract “is one where the performance is divided into different groups, each set embracing
performances which are the agreed exchange for each other.” Id. (quoting 17A Am.Jur.2d § 414, at 440). “It differs from
[entire] contracts, ordinarily, in one respect only-that on performance by one side of each of its successive divisions the other
party becomes liable for his performance of that division.” Id. (quotation omitted).
27 See Id. (“we have held that the resolution of this question depends on the parties' intent. The intent of the parties is
determined “from the language the parties have used and the subject matter of the contract.” (citations omitted)).
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Alternative 1 – Integration and Waiver: Entire Agreement; Waiver. This Agreement
constitutes the entire agreement between the parties with respect to its subject matter
and supersedes any previous agreements and understandings. A party’s waiver of a
breach of any term or condition of this Agreement shall not be deemed a waiver of any
subsequent breach of the same or another term or condition.
Alternative 2 – Plain English: Entire Agreement. This Agreement is the entire
agreement between Buyer and Seller regarding its subject matter and supersedes any
previous agreements, understandings, or courses of dealing between the parties.
Alternative 3 – Plain English: Entire Agreement. This Agreement contains the entire
agreement between the parties regarding its subject matter and supersedes all prior and
contemporaneous arrangement or understanding between the parties.
Alternative 4 – (With Reference to Confidentiality Agreement): Entire Agreement. This
Agreement, together with the Confidentiality Agreement, attached as Exhibit _ and
incorporated herein by reference, constitutes the entire agreement among the parties
with respect to the subject matter hereof and supersedes all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with respect to
the subject matter hereof.
Practice Pointers:
A. This clause is largely a response to the parol evidence rule.28 By representing that
the contract is the entire agreement, the parties want to show the contract is a final
and full expression of their understandings.29 The intent is to give full affect to the
parol evidence rule and bar any modification of the agreement by
contemporaneous or prior understandings between the parties.
B. In an Acquisition context where both parties negotiate the contract at arms-length
and are represented by counsel, an integration clause should be upheld by the
court.30 However, this provision may be trumped by fraudulent inducement. To
insulate a party from such a claim, the provision includes language to the effect that
the parties have made no representations except as set forth in the contract.
28
The parol evidence rule forbids use of extrinsic evidence to vary, add to, or subtract from a written agreement. Egan v. Egan,
212 N.W.2d 461 (Iowa 1973)
29 An agreement is fully integrated when the parties involved adopt a writing or writings as the final and complete expression of
the agreement. Montgomery Properties Corp. v. Economy Forms Corp., 305 N.W.2d 470, 476 (Iowa 1981). Whether or not a
written agreement is integrated is a question of fact to be determined by the totality of the evidence. See Restatement
(Second) of Contracts § 209, cmt. c (1981). When an agreement is deemed fully integrated, the parol evidence rule prevents the
receipt of any extrinsic evidence to contradict (or even supplement) the terms of the written agreement. Restatement (Second)
of Contracts § 213 (1981).
30 See Montgomery Properties Corp., 305 N.W.2d at 476 (holding where the “handcrafted contract contains an integration
clause, where the parties were sophisticated business persons represented by counsel and of equal bargaining strength, and
where terms of the alleged oral agreement reasonably would be expected to be included in the exchange agreement, trial court
did not err in sustaining a parol evidence rule objection, thus excluding evidence to vary its terms”).
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C. If there are any companion agreements to the Acquisition Agreement, those should
be called out in this clause, preferably by name and Exhibit reference. See
Alternative 4.
1.8
Signatures; Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one party, but all such
counterparts taken together will constitute one and the same instrument. A facsimile signature will be
considered an original signature.
Alternative 1 – Counterparts by Fax/Email: Counterparts. This Agreement may be
executed in any number of counterparts and all counterparts taken together will
constitute one and the same instrument. This Agreement is accepted once both parties
have delivered a signed counterpart to the other. Delivery of an executed counterpart of
a signature page of this Agreement by facsimile or email will be effective as delivery of
an original manually executed counterpart of this Agreement.
Practice Pointers:
A. Today’s technology makes this provision a practical necessity. Aside from allowing
counterpart signatures, it gives flexibility to the parties as they do not need to be
physically located at the same place at the time of signing.
B. Alternative 2 is preferred because it also defines acceptance and means of delivery,
leaving no room for ambiguity as to when the contract takes effect. As another
alternative, the parties could agree for the contract to take effect upon signature, as
opposed to delivery.
1.9
Governing Law. THE DOMESTIC LAW, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, OF THE STATE OF IOWA WILL GOVERN ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE PERFORMANCE OF
THE OBLIGATIONS IMPOSED BY THIS AGREEMENT.
Alternative 1 – Plain English: Governing Law. This Agreement is governed by and will be
construed in accordance with the laws of the State of Iowa (without applying its conflicts
of laws principles).
Alternative 2: Governing Law. This Agreement is governed and construed in
accordance with the internal laws of the State of Iowa, without reference to conflict of
law principles, and the obligations, rights, and remedies of the parties must be
determined in accordance with such laws.
Alternative 3: Governing Law: All of the terms of this Agreement and the duties, rights
and remedies of the parties to it and any and all matters arising directly or indirectly
herefrom and therefrom shall be governed by and construed according to the laws of the
State of Iowa without respect to the conflicts of law provisions thereof.
Practice Pointers:
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A. Absent a choice of law clause, Iowa law applies the significant relationship test in
determining what law governs a dispute.31
B. The Restatement (Second) of Conflict of Laws § 187(1), at 561, provides, “[t]he law
of the state chosen by the parties to govern their contractual rights and duties will
be applied if the particular issue is one which the parties could have resolved by an
explicit provision in their agreement directed to that issue”. This language has been
used in one Iowa case to apply foreign law.32
C. Business interests seek to limit risk. These choice of law clauses help to shore up risk
by narrowing the governing rules that will apply in the event of a dispute. In
addition, parties can eliminate (or greatly reduce) the risk of having to litigate over
governing law where laws of several states may otherwise apply.
D. The drafter should include language to the effect that the governing law is made
“without reference to conflict of law principles”; otherwise, the governing law of an
intended state may have a choice of law principle that bounces the governing law
from it to another state. The intent of the language is then circumvented.
1.10 Specific Performance. Each party acknowledges and agrees that the subject matter of
this Agreement is unique, that the other party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific terms or otherwise are
breached, and that the remedies at law would not be adequate to compensate such other party not in
default or in breach. Accordingly, each party agrees that the other party will be entitled to an injunction
or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions of this Agreement in addition to any other remedy to which
they may be entitled, at law or in equity (without any requirement that a non-breaching party provide
any bond or other security). The parties waive any defense that a remedy at law is adequate and any
requirement to post bond or provide similar security in connection with actions instituted for injunctive
relief or specific performance of this Agreement.
Alternative 1 – Specific Performance: The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms on a timely basis or were otherwise
breached, and that the parties, without the necessity of posting bond or other
undertaking, shall be entitled to an injunction or injunctions to prevent breaches of the
Agreement and to specific performance of the terms hereof to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement, in
addition to any other remedy to which they may be entitled at law or in equity. Each of
the parties hereto agrees it will not oppose the granting of such relief on the basis that
there is an adequate remedy available at law. Except as expressly provided herein, the
31
See Gabe's Const. Co., Inc. v. United Capitol Ins. Co., 539 N.W.2d 144, 146 (Iowa 1995); see also First Midwest Corp. v.
Corporate Finance Associates, 663 N.W.2d 888, 893, 663 N.W.2d 888 (Iowa 2003). Under well-recognized conflict of laws
principles, “[t]he rights and duties of the parties with respect to an issue in contract are determined by the local law of the state
which, with respect to that issue, has the most significant relationship to the transaction and the parties.” Restatement
(Second) of Conflict of Laws § 188 (1971). “Significant relationship” is determined by reference to the place of contracting, place
of performance, location of the contract's subject matter and the domiciles of the parties.” Id.
32 See In re Marriage of Cobb, 2007 WL 2492676, 2 (Iowa App. 2007) (applying foreign law to prenuptial agreement).
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rights, obligations and remedies created by this Agreement are cumulative and in
addition to any other rights, obligations and remedies otherwise available at law or in
equity. Nothing in this Agreement will be considered an election of remedies.
Alternative 2 – Broader Relief: Injunctive Relief. The parties agree that any remedy at
law for any breach of this Agreement is and will be inadequate, and in the event of a
breach or threatened breach by Seller of any of the provisions of Sections _
[noncompetition, nonsolicitation] of this Agreement, the Buyer shall be entitled to
enforce its rights and Seller’s obligations under this Agreement not only by an action or
actions for damages, but also by an action or actions for specific performance,
temporary and/or permanent injunctive relief and/or other equitable relief in order to
enforce or prevent any violations or breaches (whether anticipatory, continuing or
future) of this Agreement. Nothing herein contained shall be construed as prohibiting
Buyer from pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages from Seller.
Practice Pointers:
A. In the acquisition context, it is helpful to note Iowa’s highest court has found “[a]
contract for sale of stock of a closely held corporation which is not procurable in any
market is a proper subject for specific performance.”33
B. “Ordinarily specific performance should not be decreed unless contractual terms are
so express that the court can reasonably determine the duty of each party and the
conditions under which performance is due.”34
C. Specific performance is a matter of equity resting within the court's sound
discretion.35
D. This clause should be read in conjunction with the Remedies clause, Section 1.14
below. Failure to do so may create a conflict where one clause giveth and the other
taketh away.
1.11 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND
DIFFICULT ISSUES, AND THEREFORE IT IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT, INCLUDING ANY SOUNDING IN TORT OR OTHERWISE. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) IT UNDERSTANDS AND HAS CONSIDERED
THE IMPLICATIONS OF SUCH WAIVER, (III) IT MAKES SUCH WAIVER VOLUNTARILY AND (IV) IT HAS
33
Lyon v. Willie, 288 N.W.2d 884, 894 (Iowa 1980).
Lange v. Lange, 520 N.W.2d 113, 117 (Iowa 1994).
35 Tri-States Inv. Co. v. Henryson, 179 N.W.2d 362, 363 (Iowa 1970)
34
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BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVER
AND CERTIFICATIONS IN THIS SECTION.
Alternative 1: Waiver of Jury Trial. Each party hereby waives to the fullest extent
permitted by Iowa law, any right it or he may have to a trial by jury in respect to any
suit, action or other proceeding directly or indirectly arising out of, under or in
connection with this Agreement.
Alternative 2 – (Arbitration Reference): Waiver of Jury Trial. IN THE EVENT OF ANY
DISPUTE OR CONTROVERSY AMONG THE PARTIES ARISING HEREUNDER, WHETHER IT
RESULTS IN PROCEEDINGS IN ANY COURT IN ANY JURISDICTION OR IN ARBITRATION,
THE PARTIES HEREBY KNOWINGLY AND VOLUNTARILY, AND HAVING HAD LEGAL
REPRESENTATION OR AN OPPORTUNITY TO CONSULT WITH COUNSEL, WAIVE ALL
RIGHTS TO TRIAL BY JURY, AND AGREE THAT ANY AND ALL MATTERS SHALL BE DECIDED
BY A JUDGE OR ARBITRATOR WITHOUT A JURY TO THE FULLEST EXTENT PERMISSIBLE
UNDER APPLICABLE LAW.
Practice Pointers:
A. For obvious reasons, a jury waiver clause is a big deal. By its inclusion, the parties
have determined a judge will be a better decision maker than a jury. That may
make sense where potential disputes are anticipated to be complex (jury confusion),
where jury bias is common, or where parties want a more expedited judicial
process.
B. To be enforceable, the provision must be a knowing, intentional, and voluntary
waiver.36 Any circumstances suggesting otherwise will cast doubt against its effect.
C. Best practice suggests that the language be clear, unequivocal, and made in bold, all
caps font and that an initial block be placed next to it.
D. If Acquisition Agreement contains any companion contracts, they, too, should
contain the identical jury waiver clause. The point is to avoid any difference that a
party may use as leverage against the other.
E. If the waiver is intended to cover tort actions, a drafter should use a general
reference to “arising under, out of, or in connection with” or words of similar
import. Even better, a drafter can specifically reference tort actions as stated above
(e.g. “including those sounding in tort”).
1.12 Time of Essence. With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
Alternative 1 – Business Day Extension: Time of Essence. Time is of the essence under
this Agreement. If the last day permitted for the giving of any notice or the performance
of any act required or permitted under this Agreement falls on a day which is not a
36
“Waiver is generally defined as the voluntary and intentional relinquishment of a known right.” Anderson v. Low Rent
Housing Commission of Muscatine, 304 N.W.2d 239, 249 (Iowa 1981).
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Business Day, the time for the giving of such notice or the performance of such act shall
be extended to the next succeeding Business Day.
Practice Pointers:
A. If parties make time of the essence, strict compliance is required under Iowa law.37
B. The hazard (or gain depending on the situation) of this clause is that it ratchets up
the performance obligations tied to time constraints.
1.13 Construction; Mutual Agreement. This is a mutually negotiated agreement, and
regardless of who was more responsible for its preparation, this agreement shall be construed neutrally
between the parties regardless of the party drafting it. The language of all parts of this agreement shall
in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any of
the parties.
Alternative 1 – Construction (Abbreviated): Construction. This Agreement and the
provisions contained herein shall not be construed or interpreted for or against any party
to this Agreement because such party drafted or caused such party’s legal representative
to draft any of its provisions.
Alternative 2 – Construction: Construction. In construing this Agreement, unless the
context requires otherwise: (i) the singular includes the plural and vice versa; (ii) the term
“or” has the inclusive meaning represented by the phrase “and/or”; (iii) the term
“including” means “including, but not limited to;” (iv) the term “day” means “calendar
day;” (v) any reference to any agreement (including this Agreement), instrument,
contract, policy, procedure, or other document refers to it as amended, supplemented,
modified, suspended, replaced, restate, or notated from time to time; (vi) all captions,
headings, and similar terms are for reference only; (vii) the words “hereof”, “herein”,
“hereby”, “hereunder”, and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section subsection, clause,
schedule, and exhibit references herein are to this Agreement unless otherwise specified.
To the extent possible, the provisions of this Agreement and its Exhibits must be
interpreted to give each their full effect. However, if a conflict is deemed to exist
between them, then that conflict will be resolved in the following order of precedence:
_____ will control over _____ and _____ will control over _____.
Alternative 3: Interpretation; Construction. In this Agreement: (a) the table of contents
and headings are for convenience of reference only and will not affect the meaning or
interpretation of this Agreement; (b) the words “herein,” “hereunder,” “hereby” and
similar words refer to this Agreement as a whole (and not to the particular sentence,
paragraph or Section where they appear); (c) terms used in the plural include the
singular, and vice versa, unless the context clearly requires otherwise; (d) unless
expressly stated herein to the contrary, reference to any document means such
document as amended or modified and as in effect from time to time in accordance with
the terms thereof; (e) unless expressly stated herein to the contrary, reference to any
37
See SDG Macerich Properties, L.P. v. Stanek Inc., 648 N.W.2d 581, 586 (Iowa 2002).
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applicable law means such applicable law as amended, modified, codified, replaced or
reenacted, in whole or in part, and as in effect from time to time, including any rule or
regulation promulgated thereunder; (f) the words “including,” “include” and variations
thereof are deemed to be followed by the words “without limitation”; (g) “or” is used in
the sense of “and/or”; “any” is used in the sense of “any or all”; and “with respect to”
any item includes the concept “of” such item or “under” such item or any similar
relationship regarding such item; (h) unless expressly stated herein to the contrary,
reference to a document, including this Agreement, will be deemed to also refer to each
annex, addendum, exhibit, schedule or other attachment thereto; (i) unless expressly
stated herein to the contrary, reference to an Article, Section, Schedule, or Exhibit is to
an article, section, schedule, or exhibit, respectively, of this Agreement; (j) when
calculating a period of time, the day that is the initial reference day in calculating such
period will be excluded and, if the last day of such period is not a Business Day, such
period will end on the next day that is a Business Day; (k) with respect to all dates and
time periods in or referred to in this Agreement, time is of the essence; (l) the phrase
“the date hereof” means the date of this Agreement, as stated in the first paragraph
hereof; and (m) the Parties participated jointly in the negotiation and drafting of this
Agreement and the documents relating hereto, and each Party was (or had ample
opportunity to be) represented by legal counsel in connection with this Agreement, and
each Party and each Party’s counsel has reviewed and revised (or had ample opportunity
to review and revise) this Agreement; therefore, if an ambiguity or question of intent or
interpretation arises, then this Agreement will be construed as if drafted jointly by the
Parties and no presumption or burden of proof will arise favoring or disfavoring any
Party by virtue of the authorship of any of the terms hereof or thereof.
Practice Pointers:
A. These provisions string together a number of common law principles that govern
construction and interpretation of contracts. A drafter should be aware that Iowa
law distinguishes interpretation of contracts from construction of contracts.
“Interpretation is the process for determining the meaning of the words used by
the parties in a contract. Interpretation of a contract is a legal issue unless the
interpretation of the contract depends on extrinsic evidence. On the other
hand, construction of a contract is the process a court uses to determine the
legal effect of the words used. We always review the construction of a contract
as a legal issue. The cardinal rule of contract interpretation is to determine what
the intent of the parties was at the time they entered into the contract.”38
1.14 Remedies Cumulative. The rights and remedies of the parties under this Agreement are
cumulative. Each party shall have all other rights and remedies not inconsistent herewith as provided by
law or in equity. No exercise by a party of one right or remedy shall be deemed an election, and no
waiver by waiver by a party of a right shall be deemed a continuing waiver.
Alternative 1 – Abbreviated: Remedies Cumulative. All rights and remedies of the
parties are cumulative, not alternative.
38
Pillsbury Co., Inc. v. Wells Dairy, Inc., 752 N.W.2d 430 (Iowa 2008) (citations omitted).
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Practice Pointers:
B. Absent a finding of unconscionability, these clauses are enforceable in Iowa.39
C. Remedy language may be an afterthought for parties when a contract is signed, but
if a dispute arises, it answers to the most important question: What are our
remedies? Will a party want monetary damages, equitable remedies, restitution,
declaratory judgment, enforcement of arbitration awards, or some combination of
the above? If the answer is no, the drafter has more work to do because the
modern approach to remedies is for courts to treat them as cumulative. Even if the
parties opt for cumulative remedies, it is still a good practice to state so in the
contract. The language takes away any subsequent argument that a specifically
defined remedy excludes general remedies at law or in equity.
D. This clause is a two-edged sword—one party cannot usually limit or eliminate
another party’s remedies without giving up the same.
E. If the parties opt to limit remedies (as opposed to making remedies cumulative or
exclusive), a drafter should strike the cumulative remedies language. Failing to do
so will result in a situation where a single remedy may be limited, but the aggrieved
party can look to alternative remedies to be made whole. In that case, the
limitation language is only illusory.
1.15 Press Releases. Neither party shall issue any press release or may any public
announcement (or both) concerning this Agreement or any aspect of the transactions contemplated by
this Agreement, except as required by law.
Alternative 1 – Joint Press Release: Exhibit _ is a joint press release announcing the
execution of this Agreement. The parties agree to make the joint press release public at
the Closing and further agree that all other announcements in any form related to this
Agreement are subject to the prior written consent of the other party. Without limiting
the previous sentence, any formal employee communication programs by the Buyer
which are to be distributed prior to Closing and that concern this Agreement or the
employment or benefit arrangements to be effective following the Closing are subject to
Seller’s prior review and approval, which shall not be unreasonably withheld or delayed.
Alternative 2 – Publicity: Publicity. Buyer and Seller agree to keep the existence of this
Agreement and the transactions it contemplates confidential, except as law requires.
Practice Pointers:
39
See C & J Vantage Leasing Co. v. Wolfe, 795 N.W.2d 65 (Iowa 2011) (stating, “Contracting parties have wide latitude to
fashion their own remedies for a breach of contract and to deny full effect to such express contractual provisions is ordinarily
impermissible because it would effectively reconstruct the contract contrary to the intent of the parties. Thus, courts generally
enforce contractual limitations upon remedies unless such limitations are unconscionable” (citations and quotations omitted)).
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A. As long as an announcement is not defamatory or contain information subject to a
confidentiality obligation, a party is generally free to make public disclosure of an
Acquisition. Publicity boilerplate curtails that freedom by defining the timing and
content of public announcements.
B. The qualifier “as law requires” is used to prevent a situation where a party is forced
to choose between violating law or breaching the contract.
C. The drafter should make sure that the parties are not making an agreement to agree
over an announcement, which a court may find unenforceable. For example, stating
that the parties agree to issue a joint press release upon mutually agreeable terms
may prove unenforceable for lack of definitiveness. A better course is to either
incorporate a preapproved announcement or make preapproval a condition to
publication, as done in the form boilerplate above. Either of those are defined and
enforceable.
1.16 Expenses. Except as otherwise provided in this Agreement, each party shall pay for its
own legal, accounting and all other expenses, fees, and costs incurred in connection with the
negotiation, drafting, execution, and completion of the transactions contemplated by this Agreement,
whether or not such transactions are consummated.
Alternative 1 – Full Cost Shifting (Subject to Cap): Expenses. Buyer agrees to pay on
demand all reasonable and out-of-pocket expenses, fees, and costs incurred by Seller in
connection with the negotiation, preparation, and execution of this Agreement;
provided, however, the parties further stipulate that Buyer’s payment obligation under
this paragraph will not exceed $____ (“Cap”). If the Cap is exceeded, Seller shall be
solely responsible for all expenses, fees, and costs it incurs in excess of the Cap.
Alternative 2 – Partial Cost Shifting: Expenses. Except as otherwise provided in this
Agreement, the fees and expenses incurred by Buyer in connection with this Agreement,
any amendment or waiver hereof and the transactions contemplated hereby and all
matters related hereto shall be paid by Buyer, except Seller shall pay all reasonable fees
and expenses of one lawyer for Buyer in connection with any amendment or waiver of
this Agreement or any transactions related thereto.
Practice Pointers:
A. Where, as here, the parties are bearing the burden of their respective expenses,
fees, and costs, a drafter normally does not split the proverbial hair by defining
“expenses” vs. “fees” vs. “costs”.
B. If the proposed language shifts the transaction costs to one party in favor of the
other, the drafter should qualify the reimbursement for “reasonable” expenses,
fees, and costs.
C. If one party agrees to bear all or a portion of the other’s transaction costs, a drafter
may want to define “expenses” vs. “fees” vs. “costs”. In addition, a drafter may
need to determine the period of time under which the expenses, fees, and costs
accrue. Do the transaction costs accrue prior to a preliminary agreement (e.g.
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Letter of Intent) or only those associated with the final agreement? Defining timing
and character of such costs becomes a must when cost burden shifts.
D. If a proposed transaction warrants a material expenditure of out of pocket expense
by both or either party, good practice suggests that the parties reach a preliminary
agreement as to how that expense will be split. In the absence of this provision, a
party seeking reimbursement from an unsympathetic counterpart may be forced to
pursue (often to no gain) a remedy under promissory estoppel, unjust enrichment,
or quantum meruit. Negotiating for the divide of costs also raises the stakes for
both sides in a proposed transaction and helps to ensure each is motivated for the
task.
1.17 Post-Closing Cooperation. From time to time, as and when requested by any party, each
party shall execute and deliver, or cause to be executed and delivered, all such documents and
instruments and shall take, or cause to be taken, all such further or other actions, as such other party
may reasonably deem necessary to consummate the transactions contemplated by this Agreement.
Alternative 1. Long Form. Post-Closing Cooperation.
(a)
The Buyer and the Seller shall cooperate with each other and shall cause their
officers, employees, agents, auditors and representatives to cooperate with each other
after the Closing to ensure the orderly transition of the Business from the Seller to the
Buyer and to minimize any disruption to the Business that might result from the
transactions contemplated hereby. After the Closing, upon reasonable written notice,
the Buyer and the Seller shall furnish or cause to be furnished to each other and their
employees, counsel, auditors and representatives access, during normal business hours,
to such information and assistance relating to the Business (to the extent within the
control of such party) as is reasonably necessary to satisfy any regulatory matters.
(b)
After the Closing, upon reasonable written notice, Buyer and the Seller shall
furnish or cause to be furnished to each other, as promptly as practicable, such
information and assistance (to the extent within the control of such party) relating to the
transaction contemplated hereby (including, access to books and records) as is
reasonably necessary for the filing of all tax returns, and making of any election related
to taxes, the preparation for any audit by any taxing authority, and the prosecution or
defense of any claim, suit or proceeding related to any tax return. Seller and the Buyer
shall cooperate with each other in the conduct of any audit or other proceeding relating
to taxes involving the Business. In the event that the Seller shall after the Closing take
any position in any state or tax return, or reach any settlement or agreement on audit,
which is in any manner inconsistent with any position taken by the Seller in any filing,
settlement or agreement made by the Seller prior to the Closing and such inconsistent
position (i) requires the payment by the Buyer of more tax than would have been
required to be paid had such position not been taken or such settlement or agreement
not been reached or (ii) accelerates the time at which any tax must be paid by the Buyer,
or the Seller, as the case may be, shall provide timely and reasonable notice to the Buyer
of such position.
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(c)
Each party shall reimburse the other for reasonable out-of-pocket costs and
expenses incurred in assisting the other pursuant to this Section. Neither party shall be
required by this Section to take any action that would unreasonably interfere with the
conduct of its business or unreasonably disrupt its normal operations (or, in the case of
the Buyer, the Business).
Practice Pointers:
A. In this clause, each party is confirming their general commitment to provide and
receive the full benefit of the bargained for exchange. It is not always practical or
possible to document all aspects of a transaction at the closing (e.g. governmental
approvals, third party consents, etc.). Certain ancillary items may need attention
post-closing and that is where the parties can fall back on this clause.
B. In the event a party refuses to cooperate post closing and this refusal frustrates a
benefit of the bargain, the requesting party can claim breach of this clause and
Iowa’s implied duty of good faith and fair dealing.
1.18 Attorneys’ Fees. Should any Party institute any action or proceeding in court or
otherwise to enforce any provision hereof or for damages by reason of alleged breach of any provision
of this Agreement, the substantially prevailing Party shall be entitled to receive from the non-prevailing
Party such reasonable out of pocket expenses (including attorneys’ fees and expenses) incurred by the
substantially prevailing Party in connection with any such action or proceeding.
Practice Pointers:
A. “Under Iowa Code section 625.22, an express provision in a contract between
parties authorizing the payment of attorney fees and litigation expenses is an
authorization to a court in an action based on that contract to add attorney fees and
litigation expenses to a favorable judgment. The determination of the amount of
such fees and expenses is normally a matter entrusted to the discretion of the
district court.”40
1.19 Survival of Representations and Covenants. Notwithstanding any right or obligation of a
Party to fully investigate the affairs of the other Party and notwithstanding any knowledge of facts
determined or determinable by a Party pursuant to such investigation or right of investigation, each
Party has the right to rely fully upon the representations, warranties, covenants and agreements of the
other Party contained in this Agreement. Each representation, warranty, covenant and agreement of a
Party contained herein will survive the execution and delivery of this Agreement and the Closing and will
thereafter terminate and expire on the first anniversary of the Closing Date unless, prior to such date, a
Party has delivered to the other Party a written notice of a claim with respect to such representation,
warranty, covenant or agreement.
Practice Pointers:
40
EFCO Corp. v. Norman Highway Constructors, Inc., 606 N.W.2d at 301 (citing Berryhill v. Hatt, 428 N.W.2d 647, 657 (Iowa
1988)).
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A. This clause is used to tighten the enforceability of any representation, warranty,
covenant, and agreement made by or between the parties. If it is used, a good
practice is to include the term under which those reps and warranties survive.
1.20 Recitals Binding. Attached Schedules. The parties adopt the recitals at the beginning of
this Agreement as fact, and the same are incorporated into this Agreement. All Schedules attached to
this agreement are intended to be incorporated by reference.
Practice Pointers:
A. None.
[_END_]
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