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Tradu 1: Short guide to legal structures

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Tradu 1: Short guide to legal structures

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Sanchez Cannavó

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The phrase to the maximum extent permitted by law is sometimes used in a provision which may, depending on the circumstances or the applicable law, turn out to be invalid or unenforceable. Such provisions include in particular clauses limiting the liability of a party and non-compete clauses (both in commercial setting and in employment agreements). For example:

Until one year after the termination or expiration of this Agreement and to the maximum extent permitted by law, Employee shall not, directly or indirectly, for own benefit or for the benefit of third parties, undertake or facilitate any activities in a field of business equal or similar to a business of Employer or otherwise in direct or indirect competition with Employer.

The phrase to the maximum extent permitted by law is redundant to the extent that any statutory (or other legal) limitations do not prohibit or restrict the referenced provision. This must be distinguished from the case where two commercial parties negotiate a normal contract and are free to agree on prohibitions and restrictions (as opposed to the case where those parties deal on a questionable basis of either party's general terms and conditions). In such 'negotiated' contracts, the limitation of liability would not be invalid or unenforceable, because no party can be deemed to have disagreed to such 'negotiated' limitation The phrase may be useful if the parties do not want to investigate where and to what extent such limitations apply or if there is a reasonable likelihood that, at some point in time, the applicable law may become more restrictive.

To the maximum extent permitted by law may also serve as a hint to a court that, in case it considers the invalidity or unenforceability of the clause, it should also nevertheless impose some kind of limitation or prohibition. This argument is not very convincing because a court should anyhow consider the appropriateness of giving at least some effect to the litigated provision.

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'To the maximum extent permitted by law' - Weagree

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The phrase to the maximum extent permitted by law is sometimes used in a provision which may, depending on the circumstances or the applicable law, turn out to be invalid or unenforceable. Such provisions include in particular clauses limiting the liability of a party and non-compete clauses (both in commercial setting and in employment agreements).

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Subject to in contracts: priority or hierarchy? Subject to... introduces a priority of clauses. Obligations sometimes contradict or overlap each other. Obviously, a contradiction should be clarified; and an overlap of provisions would require revision or a clarification as well. In most cases, the issue is solved by the words Subject to section..., indicating the hierarchical interaction between both provisions. In other cases, a hierarchy of provisions is not present but indispensable for one party. Also in these cases the hierarchy of clauses can be indicated by the words Subject to....

Subject to the terms of this Agreement. The phrase Subject to the terms of this Agreement (or, equally, subject to the terms and conditions of this Agreement) is often superfluous for its being overly broad. Clearly, the rights and obligations of the parties to a contract must be established by considering the agreement as a whole rather than each clause in isolation. But property law aspects interfere in this respect. This would in particular be the case with a sale and transfer of a right or good under a contract governed by the laws of a jurisdiction of the Roman legal tradition or by the laws of Germany (because Germany applies the so-called abstract system for a transfer of ownership): The seller will want to ascertain that the transfer of the right or goods (e.g. embodied in section 2.1 of the sales agreement) is conditional on the due performance of all other key obligations. If the conditionality is not present, a non-performance by the purchaser will leave the seller with the goods or rights being transferred and a claim for payment of the purchase price. If the conditionality is established and the purchaser breaches its obligations, the seller is deemed (in hindsight) to have remained the owner and has a claim for damages.

Case law has largely smoothed the effects of the underlying legal concepts but not entirely. For example, if a party grants the other party an option in one section and the exercise price and exercise period in other sections, it would be inconceivable that the option is without an exercise price or exercisable indefinitely. It is nevertheless recommended to establish an express link at least between key obligations of an agreement.

Best practice rules. The words Subject to... should not be used to supplement a provision or merely to link two or more clauses. Also, undercutting a clause to other provisions should be specific (i.e. referring to specific sections) and, if possible, not generically be referring to this Agreement. Avoid combining the words subject to with except as provided in one sentence.

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Subject to in contracts: priority or hierarchy? Subject to ... introduces a priority of clauses. Obligations sometimes contradict or overlap each other. Obviously, a contradiction should be clarified; and an overlap of provisions would require revision or a clarification as well.

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as used in contracts is a preposition to indicate that the phrase or provision that follows limits or qualifies another provision (to which notwithstanding points).

In the following example, notwithstanding points to the preceding sentence, which is then limited as regards the term within which errors must be reported (i.e. not monthly but promptly):

Monthly, Supplier shall report to Customer on the service levels achieved by it. Notwithstanding the previous sentence, Supplier shall promptly notify Customer of each Crucial Error or Major Error in the software.

In another example, this limitation (or rather: carve-out) works slightly different:

11.3 Any liability of Supplier pursuant to this Agreement shall in no event exceed EUR 2,000,000. 12.5 Notwithstanding Section 11.3, Supplier shall defend and indemnify Customer against all liability resulting from the use of the Product in violation of any intellectual property rights of a third party...

In the example, the liability of Supplier pursuant to the indemnity in Section 12.5 may well exceed the maximum amount of Section 11.3. This is the effect of the word notwithstanding. In other words, the Supplier must indemnify Customer even to extent that the claim against Customer exceeds the amount of two million euro.

An interesting detail of the same example is whether Supplier will also be exposed to liability vis-à-vis Customer once such an indemnity (in excess of two million euro) has been effected: whilst Section 12.5 operates independent from Section 11.3, this latter section appears to include any liability based on Section 12.5.

Actual meaning. The use of the word notwithstanding in contracts does not differ from its plain and ordinary English meaning. Notwithstanding has the following meanings:

Like subject to, the word notwithstanding creates a priority of provisions.

Best practice - lex specialis. Consider not using notwithstanding. Often, a drafter uses notwithstanding anything [herein] to the contrary to protect a significant provision against a conflicting provision, whichever provision that may be. In many cases, notwithstanding is redundant. As with subject to, it would be difficult for a party to argue that a clause inserted notwithstanding another provision was not intended to operate in deviation or as limitation of the other provision despite its clear wording. The argument would be that a specific rule prevails over a general principle ( lex specialis derogat legi generali).

Best practice - no notwithstanding the foregoing. Whilst notwithstanding the foregoing might seem relatively benign, in that the provision that is undercut would seem to be close at hand, the foregoing could conceivably refer to the previous sentence, to the entirety of the preceding part of the body of the contract, or to something in between.

Notwithstanding and subject to. Although the meaning of subject to is essentially the same as that of notwithstanding, the former appears in the superseded clause and the latter in the prevailing clause. The important effect is that the reader of subject to is put on notice that another provision may prevail, whilst the reader of the same clause would not be aware of such prevailing provision if that prevailing provision only indicates the priority by notwithstanding.

The use of notwithstanding might result in (unintended) ambiguities; when a third contract clause refers to a section that is itself subordinate to another clause, which uses notwithstanding: in that case it might be uncertain whether the prevailing clause (i.e. in which the reference notwithstanding was made) is intended to be captured by such third contract clause.

If the section referred to in the third contract clause is subordinated to another clause by using subject to, the ambiguity does not occur because in that case it is clear that the subordinated section is limited by that other clause as well (since the subordinated clause says so itself). Compare the following examples:

9.1 During the term of this Agreement and for a period of 12 months thereafter, Agent shall refrain from, directly or indirectly, for itself or for the benefit of others, being involved in the development, manufacture, sale, representation, marketing or distribution of any products of other persons than Principal which are substantially similar to or competing with the Products.9.2 Notwithstanding Section 9.1, during the term of this Agreement and for a period of 18 months thereafter, Agent shall refrain from, directly or indirectly, acting as an agent or representative for or on behalf of or otherwise for the benefit of XXX, YYY or ZZZ, or such other third party as Principal notifies Agent from time to time for this purpose.

...
13.1 If a Party acts (or fails to act) in breach of Sections 2.4, 3.3 or 9.1, it shall forthwith, without any further action or formality being required, become liable to the other Party for an immediately due and payable penalty of EUR 25,000 for each such breach and for an additional penalty of EUR 10,000 for each day such breach continues, without prejudice to such other Party's right to damages.

In the preceding example, it is questionable if a breach of section 9.2 is also subject to the penalty of section 13.1. (It does not seem so, unless the breach would be a breach of section 9.1 as well.) The penalty clause does apply if sections 9.1 and 9.2 are modified as marked:

9.1 Subject to section 9.2, dDuring the term of this Agreement and for a period of 12 months thereafter, Agent shall refrain from, directly or indirectly, for itself or for the benefit of others, being involved in the development, manufacture, sale, representation, marketing or distribution of any products of other persons than Principal which are substantially similar to or competing with the Products.9.2 [
delete Notwithstanding Section 9.1, d]During the term of this Agreement and for a period of 18 months thereafter, Agent shall refrain from, directly or indirectly, acting as an agent or representative for or on behalf of or otherwise for the benefit of XXX, YYYY or ZZZ, or such other third party as Principal notifies Agent from time to time for this purpose.

Finally, a subtle difference may be the sense of equality of provisions conveyed by notwithstanding, whilst subject to unequivocally subordinates one clause to another, the notwithstanding does not necessarily imply that the referenced clause is overlapping or contradictory.

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'Notwithstanding...' in contracts - Tips and tricks

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as used in contracts is a preposition to indicate that the phrase or provision that follows limits or qualifies another provision (to which notwithstanding points). In the following example, notwithstanding points to the preceding sentence, which is then limited as regards the term within which errors must be reported (i.e.

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The words except as or except that indicate an exception to the rule in connection with which it is given. If an exception is specific, the agreement should likely address what happens (or who should do what) in connection with each such exception.

The relation between two or more contract provisions is often expressed by starting one of the provisions by:

Except as otherwise agreed...
Except as otherwise specified in a Purchase Order...

Note the subtle difference between the two above examples, which is the limitation to where such deviating agreement can be made. It may well have little meaning but is sometimes useful. For example, if in a framework agreement another provision requires that all deviations from that framework agreement are invalid unless such deviating provision explicitly states that it is intended as a deviation and from which provision it deviates.

The words except as otherwise agreed are sometimes inserted to invite the reader (at a later stage) to consider proposing a deviation from the provision. This is because many people are psychologically inclined to believe that they are bound by the contract text (whereas the literal text may well imply a flexibility that is not at first present in the words). For example, many contractual prohibitions or restrictions are not per se carved in stone but require a proper explanation before a party would waive a violation in a certain context.

Best practice - be specific. Rather than the abstract phrase except as otherwise agreed, it is recommended to be specific and identify which clause actually does limit or qualify that provision.

Other qualifiers or subordinations. The counterpart of except as otherwise agreed would be notwithstanding anything [in this agreement] to the contrary. Obviously, this counterpart clause means that the provision at hand may well limit or qualify another provision (of the contract or elsewhere). Whilst these clauses imply a rule with specified exceptions, the phrase subject to introduces a hierarchical priority of clauses.

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Except as otherwise agreed in contracts - tips and tricks

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The words except as or except that indicate an exception to the rule in connection with which it is given. If an exception is specific, the agreement should likely address what happens (or who should do what) in connection with each such exception.

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From time to time means:

Occasionally

Once in a while; occasionally

Once in a while; at intervals

If you do something from time to time, you do it occasionally, but not very often

Despite this meaning, the phrase from time to time is used slightly differently and in several contexts. First of all, it clarifies that an action is required or permitted more than once:

Customer may from time to time require Service Provider to provide it with a certificate of insurance.

Without the suffix from time to time, Customer may demand this certificate only once. The phrase permits Customer to request the certificate as many times as it likes. A second use of from time to time serves to clarify that the subject referred to may change after the agreement enters into force:

If Supplier desires to amend the Statement of Work, it shall notify Customer of all proposed amendments in accordance with Customer's engineering change ( EC) procedure from time to time.

Chairman means the chairman of the Non-Executive Board from time to time.

The examples bring aspects that may influence the object that is modified by the phrase from time to time outside the immediate scope of the provision. How and when the Chairman is appointed should be addressed elsewhere; it is clear who is referred to. Similarly, although a change in the engineering change procedure might well affect the possibility of amending the Statement of Work (or even render such amendment illusory), such change is outside the scope of this amendment provision

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From time to time in contracts - meaning and use

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From time to time means: Occasionally Once in a while; occasionally Once in a while; at intervals If you do something from time to time, you do it occasionally, but not very often Despite this meaning, the phrase from time to time is used slightly differently and in several contexts.

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Deemed in contracts. The reference in a contract provision to deem means a contractual fiction that a specified condition is satisfied (or not) or that a fact or event has (or has not) occurred.

This Agreement may be executed in several counterparts, each of which is an original and all of which together are deemed to constitute one and the same agreement.

The fiction created by the use of deem has a firm and binding effect. However, upon any such condition being deemed satisfied or upon such fact or event being deemed to have occurred, the party affected by such fiction might well argue and prove that the deemed-satisfied condition is not actually satisfied, or that deemed-occurred fact or event is actually absent. Whether this is indeed possible, might be a matter of interpretation. If so, the consequences of the other party having implemented any measures or having acted in reliance on the deemed fiction deserves protection as well.

Deem is sometimes used redundantly in a provision that does not establish a fiction. For example:

The Closing Date shall be deemed to be the date on which all matters referred to in Section 6.3 have been completed.

Such use of deem is not redundant if the closing of the transaction might conceivably span over several days, in which case the following fiction would be appropriate:

The Closing Date shall be deemed to be the date on which the last matter referred to in Section 6.3 has been completed.

Or alternatively:

Upon completion of all the matters referred to in Section 6.3, the Closing Date shall be deemed to be the date on which the Deed of Transfer was executed by the Notary.

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Shall be 'deemed' in contracts - Weagree

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Deemed in contracts. The reference in a contract provision to deem means a contractual fiction that a specified condition is satisfied (or not) or that a fact or event has (or has not) occurred. This Agreement may be executed in several counterparts, each of which is an original and all of which together are deemed to constitute one and the same agreement.

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Shall or will in contracts. A contract drafter should either use shall or will and always use it consistently. Often, in combining contract provisions from different sources or in marking up a draft contract, a party easily introduces the other verb. Do not hesitate to mark-up any inserted shall or will wording to restore consistency.

Ken Adams. There are drafters, such as drafting expert Kenneth Adams, who distinguish different types of contract language:

(a) provisions imposing an obligation on a party (e.g. "Seller shall deliver the Product"), where shall could be replaced by has an obligation to;
(b) provisions signalling an obligation on a third party (e.g. "the Parties agree that 3X shall first deliver the raw materials"), where shall would preferably be replaced by must (and where replacing it by has an obligation to is ineffective in view of 3X being an outsider to the contract);
(c) provisions addressing, as a matter of policy (not necessarily requiring any action), a consequence upon the occurrence of a specified event (e.g. "this Call Option shall terminate upon the Majority Shareholder selling its Shares"), where shall would more appropriately be replaced by will.

The distinction between several types of contract provisions suggests that 'consistent drafting' means that shall should always be used for party obligations and that contract policy rules should be signalled by will (implying that both shall and will may properly co-exist in one contract). Others would dispose with such distinction if the use of will psychologically smoothes the sharp edges from the obligatory shall helping the other party to assume such obligation.

Oxford dictionary. Interestingly enough, the Oxford English Dictionary ( OED) makes another distinction: the traditional use of shall and will prescribes that when forming the future tense, shall should be used with the first person I and we, while will should be used with the second or third person you, he, she, it and they. When emphasising determination or a command (including obligations?) the rule is reversed: will is used with I and we; and shall with you, he, she, it and they. This distinction largely aligns with the above distinctions. In contracts, the distinction made by the OED becomes visible in letter agreements (in which the parties are often referred to as you and we; as opposed to contracts where parties act as "it" or anyhow as the third person).

'll. The OED continues to explain that in real life, the rules are not followed so strictly and that the contracted (!) forms I'll or we'll are often used instead, albeit in particular in spoken or informal context. You should never contract will or shall!

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Shall or will or must in contracts - Tips and tricks - Weagree

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Shall or will in contracts. A contract drafter should either use shall or will and always use it consistently. Often, in combining contract provisions from different sources or in marking up a draft contract, a party easily introduces the other verb. Do not hesitate to mark-up any inserted shall or will wording to restore consistency.

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Said. Some drafters like to use said instead of one of the plain English alternatives the, this, that, these or those. The ICC model arbitration clause contains such example:

All disputes arising out of or in connection with this Agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.

This use of said (or stated) is one of the hallmarks of legalese: it is archaic and adds nothing to the normal equivalents these or those. (And it sounds like 'sad'.)

Best practice. It is good practice to link sentences to another and to provide for a clear and understandable sequence ( see also the Contract Drafting Manual on the use of signaling sentences - click here). Similarly, topical sentences may provide a transition from one paragraph to the next. In such case, a pointing word or transition phrase clearly marks whether the paragraph expands on the paragraph before, contrasts with it, or takes a completely different direction.

Three techniques to link. Bryan Garner[1] divided such links and transitions into three categories:

1. Pointing words: this, that, these, those and the. These words - especially this and that - refer directly to an antecedent. If the preceding sentence or paragraph describes a principle or prohibition, and the next paragraph begins with "An exception to this..." the word this makes a clear connection.

2. Echo links: words or phrases echo a preceding qualification, condition or concept. An echo link between two provisions of a contract provides a strong connection and is therefore a useful technique to avoid ambiguity. At the same time, contract drafters tend to expand the echo links to avoid ambiguity. Therefore, always remember the general drafting principles of keeping a contract simple and clear ( i.e., 'write short sentences' and 'delete unnecessary words' - see this weblog or paragraphs 1.1(a) and 1.1(d) in the Contract Drafting Manual on this website). An 'echo link' often appears together with the pointing word such ( e.g., "...such prohibitions do not..."). As a matter of style, consider limiting yourself to the more elegant pointing word the or this.
For example, it is unnecessary to repeat or summarise prohibitions if qualifying them as such (or identifying them by their number) is unequivocally clear. So after an enumeration of three prohibitions, avoid elaborate echo links such as:

The three prohibitions not to modify, manufacture or use the Prototype do not apply in the event that...

Given the strong interrelationship created by an echo link, it is recommended to minimise it to what is really necessary for making the transition (and avoiding ambiguity):

The three prohibitions do not apply if...

It would probably be appropriate, especially if the preceding enumeration consists of visually separated subitems, to continue with the mere caveat " ..., except if...".
Note that the echo link may well be used to express a qualification of what precedes. However, be reluctant to introduce more than one qualification in such echo links: the qualifications themselves may be a source of ambiguity. Note that the use of defined terms is a species of echo links.

3. Explicit connectives: words intrinsically making a transition (such as further, also, therefore). Explicit connectives greatly improve the readability of a contract because the coherence of provisions increases. Garner categorised the explicit connectives:

Adding a point: also, and, in addition, besides, similarly, further;

Giving an example: for example, for instance, for one thing (and for another);

Restating or summarising: in other words, that is, in short, put differently, again;

Introducing a result: so, as a result, therefore, accordingly, then;

Contrasting: but, however, on the other hand, nevertheless, conversely;

Summing up: to summarize, to conclude, in conclusion, in short;

Sequencing qualifications, conditions or concepts: Firstly,... Secondly,... Thirdly,... Finally,...

[1] Bryan A. Garner, Legal Writing in Plain English, University of Chicago Press, Chicago 2001, p. 67-71.

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"Said" and "such" in contracts - Weagree

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Said. Some drafters like to use said instead of one of the plain English alternatives the, this, that, these or those. The ICC model arbitration clause contains such example: All disputes arising out of or in connection with this Agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.

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Mercado de Capitales para no especialistas

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Mercado de Capitales para no especialistas

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Instrumentos de inversión y mercados financieros

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Instrumentos de inversión y mercados financieros

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Valores de corto plazo. Commercial paper.

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Formas de financiamiento empresario. Concepto de renta fija y renta variable. Diferencias.

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Formas de financiamiento empresario. Concepto de renta fija y renta variable. Diferencias.

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Renta variable. Acciones. Ampliación de capital. Salida a bolsa.

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Renta fija. Deuda pública. Principales títulos de deuda pública en Arg. y EE. UU.

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Deuda privada. Obligaciones negociables. Corporate debt instruments.