1. law, govt and politics

Considerations for Drafting Legal Agreements
by Michael F. Schaff and Peter Greenbaum
At the signing of the Declaration of Independence, Benjamin Franklin was
thought to have said: “We must all hang together, or assuredly we shall hang
separately.” While most documents attorneys draft do not have the significance
of the Declaration of Independence, many attorneys draft, prepare and negotiate
legal documents their clients consider essential.
he preparation and creation of legal docu-
T
ment in, or understanding of, the relationship beyond what is
ments can be an integral part of an attorney’s
written on the paper. When questions or disputes arise, the
daily activities. Civil litigators routinely draft
businesspeople familiar with the issues may not be those
complaints, pleadings, interrogatories, briefs
involved with the drafting, negotiating and execution of the
and motions. Attorneys specializing in trusts
underlying agreement, which often occurred months or years
and estates draft wills, trust agreements and
before.
succession plans. Transactional attorneys draft agreements on
Often, the attorneys who are asked by their clients to inter-
all topics involving all subject matters, including employment
pret the agreement and answer questions are not the same
agreements, purchase agreements, leases, license agreements,
attorneys involved in initially drafting the agreement. Should
shareholder agreements and other organizational documents.
litigation arise, the attorneys charged with litigating the dis-
Lender’s counsel draft loan agreements, security agreements,
pute probably had no input in the initial drafting or subse-
promissory notes, and numerous other agreements relating to
quent interpretation. Consequently, it is essential that whoev-
a loan transaction.
er reviews the agreement, whenever the situation arises, and
Regardless of your area of specialization, in all likelihood,
whatever the question, can clearly understand it on its face.
you will be charged with the task of drafting a legal document.
The first step in preparing an agreement is to draft an out-
With this in mind, this article is a guide for attorneys when
line setting forth the general topics that must be included
drafting any legal document. Since both authors practice pri-
within the document. An outline not only assists in organiz-
marily transactional law, the article will focus on considera-
ing the drafter’s thoughts, but also will ultimately result in a
tions that should be explored by a transactional attorney.
more concise agreement that flows smoothly.
Background
helpful. The use of forms can be an invaluable tool because
Consulting a similar agreement drafted previously may be
The ultimate goal of an agreement is to enter into a clear,
they save time, and as a result money, since there is no need
concise and unambiguous arrangement acceptable to all par-
to begin from scratch. But any reliance on forms should be
ties. An executed agreement, once signed, is usually put in a
considered carefully.
drawer and forgotten about until there is a question regarding
An attorney must not force the transaction into an existing
a particular aspect of the relationship or, worse, a dispute.
form. A form agreement must be viewed as a resource or start-
Therefore, it is vital that the agreement accurately reflect each
ing point, to be revised carefully and appropriately to address
party’s understanding of the relationship.
the transaction and issues at hand. That said, many inexperi-
It is also imperative that the agreement be drafted in a
enced attorneys rely too heavily on a form and are afraid to
manner easily understood by third parties having no involve-
depart from its language. Remember, the form being relied
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upon was used for a specific transaction,
ment agreement, and most others, is the
most likely with a different set of facts,
recitals, sometimes known as the
The Employee shall devote such
and possibly prepared by a less experi-
“Whereas” provisions. Whereas provi-
time as may be reasonably necessary to
enced attorney.
sions are not legally required, but are a
cooperate with the efforts of the
useful tool. They provide a basic
Board of Directors in the management
Drafting
Employer.
overview of the content of the agree-
and governance of the Employer’s
Again, every agreement is unique to
ment. The goal is to set forth, in simple
business. Such duties shall be delegat-
the facts of the subject transaction. Yet,
terms, the basic purpose of the agree-
ed to the Employee by the Board of
the general structure of most agree-
ment, some background information to
Directors from time to time.
ments is similar. They begin with identi-
set the stage, and the nature of the
The Employee shall have and fulfill
fying the parties and the general subject
transaction. This gives the reader a basic
the duties assigned to him or her from
matter, then proceed to the transac-
understanding of the transaction in
time to time by the Employer. The
tion’s particular issues, and end with
order to draft the more detailed provi-
Employee shall devote his or her full
miscellaneous provisions. As an exam-
sions that follow.
ple, consider a general employment
agreement to illustrate the various parts.
Opening Paragraph
All agreements should begin by identifying the parties.
THIS
EMPLOYMENT
time and attention to the business of
the Employer and shall to the utmost of
WHEREAS, the Employer is engaged in
his or her abilities work for the profit
the business of ____________; and
and benefit of the Employer. The
WHEREAS, the Employee has experi-
Employee shall not, without the express
ence as a _____________; and
prior written consent of the Employer,
WHEREAS, the Employer desires to
render
employ the Employee and the Employ-
employed by any person, corporation,
services
or
otherwise
be
AGREEMENT,
ee desires to be employed by the
partnership, firm or entity other than
dated as of the __ day of ____, 200_
Employer on the terms and conditions
the Employer. The Employee will not do
by and between ____________________
hereinafter set forth.
(the “Employer”) and ______________
(the “Employee”).
anything to compete with the Employer’s present or contemplated business,
These provisions are not usually part
of the legally binding provisions of the
nor will he or she plan or organize any
competitive
business
activity.
The
This is a typical header of an employ-
agreement (unless incorporated by refer-
Employee will not enter into any agree-
ment agreement, which identifies it as
ence into the body of the agreement).
ment which conflicts with his or her
an employment agreement, notes the
The drafter should attempt to only sum-
duties or obligations to the Employer.
date upon which it was executed, and
marize the overall relationship, rather
Without limiting the generality of
identifies all applicable parties. Careful
than include specific deal points.
the foregoing, the Employee shall
consideration should be given to the
Whereas provisions are only intended
have the following specific obligations
applicable parties. Within the global
to set the stage. The details of the trans-
and
economic structure in which companies
action will be set forth in the body of
_____________________________.
operate, it is not unusual for an entity to
the agreement.
This is alternate generic language
have numerous subsidiaries and affiliates, both domestic and foreign.
duties:
Duties and Obligations
relating to the duties and obligations of
Typically, the first substantive provi-
an employee in an employment agree-
must be clear exactly who the “employ-
sion in an agreement is the respective
ment. Whether an employment rela-
er” is, so it is not misstating the employ-
duties and obligations of the parties. In
tionship, a sale of a business, or other
er as an affiliate or a subsidiary of the
an employment agreement, duties and
transaction, the duties and obligations
intended entity. This consideration
obligations may consist of the following:
of each party must be specifically stated.
in the event an entity is selling its busi-
Duties: The Employee shall devote his
address specific job functions, time
ness, the correct entity must be identi-
or her full professional time, and
commitment, and location of services,
fied as the seller.
attention, and energy as reasonably
among other things. For a sale of a busi-
necessary for him or her to perform all
ness, these obligations usually consist of
Recitals or Whereas Provisions
duties assigned or delegated to him or
the seller agreeing to sell its business, or
her by the Board of Directors of the
a portion of it (perhaps consisting of
In an employment agreement, it
In an employment relationship, they
applies to all transactions. For instance,
The next provision in an employWWW.NJSBA.COM
NEW JERSEY LAWYER | April 2009
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specific assets, goodwill, employees and
In an employment relationship, this
ee on the disability of the Employee as
other intangible items), and the buyer
provision is clear. It specifies how much
determined by the Employer in accor-
agreeing to certain post-closing respon-
the employee is to receive and when it is
dance with the Employer’s policies
sibilities, such as assisting with the col-
to be received. Since it is relatively sim-
thereon.
lection of the seller’s open accounts
ple, including only a flat salary, in reali-
receivable, among other things. In the
ty there is little ambiguity, resulting in
er on at least __________________ (___)
case of a lease or license of an item, such
less chance of a conflict.
days advance written notice to the
(iv) By the Employee or the Employ-
as an office, software or other equip-
The same principle applies in the sale
ment, the lessor agrees to lease the iden-
of a business or the license or lease of an
(v) By the Employer, immediately,
tified items to the lessee, and the lessee
asset. It is not unusual for a transaction,
on the occurrence of “Cause”, the exis-
agrees to certain use restrictions and
such as in the case of a sale of a business,
tence of which shall be determined in
obligations. In any event, the agreement
to include not only fixed cash payments,
the sole discretion of the Employer
should state exactly what is required of
but also earn-out payments or other pay-
which shall include, but not be limited
each party.
ments tied to the achievement of finan-
to any of the following:
When each party’s responsibilities
other party.
cial thresholds or a formula. In this situ-
(A)
the
Employee’s
recurring
are not clear, a dispute is more likely to
ation, it is essential the formula be clearly
absence, other than for illness or dis-
arise. The drafter may attempt to pre-
stated, including who initially proposes
ability; or
vent this by being overly specific when
the earn-out or other formulaic amount;
(B) the Employee’s failure to abide
identifying the responsibilities. Some-
whether there is a review opportunity
by the terms of this Employment
times, certain responsibilities are not
and, if so, the terms; and should a dis-
Agreement, after notice and a ten (10)
known at the time of the drafting, and
pute arise, whether an accountant or
day opportunity to cure to the satisfac-
very broad language is inserted. This can
other third party would be the final
tion of the Employer; or
lead to disputes, since one party may
arbiter. Providing examples is highly rec-
(C) the loss of the Employee’s
believe the other is not honoring the
ommended, so a complicated formula
license to [insert any required licenses];
intent of the agreement.
can be more easily understood.
or
Termination
zlement, misappropriation, or similar
Other times, the agreement calls for
specific responsibilities to be deter-
(D) fraud, theft, dishonesty, embez-
mined later. In this case, the subsequent
Most relationships must eventually
determination must be memorialized in
come to an end. In the employment
(E) the committing of any act or
writing. The initial agreement should
realm, certain obvious termination
failure to act where there is a duty to
identify what happens if the parties are
events exist, such as death. There are
act by the Employee, where such act or
unable to agree at that later time.
many other events that could trigger a
omission constitutes an indictable
termination (and all such events may
criminal offense; or
Financial Considerations
Although it is not unusual for a party
not be applicable in all relationships).
(F) the Employee’s intoxication
Consider the following:
while on duty; or
Termination. This Employment Agree-
possession of drugs or intoxicants; or
to agree to provide goods or services in
exchange for another party’s goods or
actions by the Employee; or
(G) the Employee’s illegal use or
services, in most cases one party is pro-
ment shall terminate and the Employ-
(H) any other conduct of the Employ-
viding goods or services in exchange for
ee shall cease to be an employee of
ee which the Employer deems detrimen-
a payment. For example, in the employ-
the Employer and all of the rights of
tal to its practice or which constitutes
ment context:
the Employee hereunder shall termi-
cause for termination in the Employer’s
nate and the obligations of the
reasonable discretion, it being impossi-
Employer to make payments hereun-
ble to specifically enumerate all events,
Compensation. For all services rendered under this Employment Agree-
der shall immediately cease upon the
conduct, and occurrences which would
ment, the Employer shall pay the
occurrence of any of the following
be injurious to the Employer and which
Employee a base salary of equal to
events:
would constitute cause.
$__________ per annum which shall be
paid in installments in accordance with
30
(i) By the mutual agreement of the
Employee and the Employer.
In essence, these provisions state that
the Employer’s payroll practices, sub-
(ii) By the death of the Employee.
the relationship is terminable upon
ject to applicable withholdings.
(iii) By the Employer or the Employ-
death, disability, without cause upon
NEW JERSEY LAWYER | April 2009
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appropriate notice, and for cause imme-
individual or entity that would prohib-
diately. A lease and a joint venture rela-
it or impede the Employee from
(whether of the State of New Jersey or
tionship also can be terminable. Any
undertaking
the
any other jurisdiction) that would
type of agreement should clearly enu-
duties, responsibilities and obligations
cause the application of the laws of
merate each party’s termination rights,
under this Employment Agreement,
any jurisdiction other than the State of
if any.
and the Employee is free to enter into
New Jersey. Each of the parties submits
and perform the terms and provisions
to the jurisdiction of any state or fed-
hereof.
eral court sitting in the State of New
Representations and Warranties
and
performing
conflict of law provision or rule
Representations and warranties are
(b) The Employee is under no phys-
Jersey in any action or proceeding aris-
the formal description of certain facts or
ical or mental disability that would
ing out of or relating to this Agree-
circumstances. Technically, representa-
hinder, with our without reasonable
ment and agrees that all claims in
tions are statements of past or existing
accommodations, the Employee’s abili-
respect of the action or proceeding
facts. Warranties are promises existing
ty to carry out the duties, responsibili-
may be heard and determined in any
facts are or will continue to be accurate.
ties or obligations to be rendered by
such court. Each party also agrees not
For the most part, these terms are used
the Employee under this Agreement.
to bring any action or proceeding aris-
interchangeably.
Representations and warranties are a
formal way for one party to learn about
(c) The Employee is duly licensed as
ing out of or relating to this Agree-
a ___________ without restriction or
ment in any other court. Each of the
limitation in the State of ______.
parties waives any defense of incon-
the other party before or while entering
venient forum to the maintenance of
into an agreement. They are also used
In an acquisition of a business or
any action or proceeding so brought
in addition to, or in lieu of, other due
asset, or the lease or license of an asset,
and waives any bond, surety, or other
diligence activities. Further, they pro-
as with most other relationships, repre-
security that might be required of any
vide a basis for a party to seek redress
sentations and warranties are appropri-
other party with respect thereto.
against another party in the event one
ate, although they differ from situation
Entire Agreement and Integration.
has breached a representation or war-
to situation. Each party must ask itself
This Agreement contains the entire
ranty (or a representation or warranty is
what basic assumptions it is making
understanding of the parties hereto.
inaccurate).
about the other party and the transac-
This Agreement supersedes all other
Due diligence is conducted within an
tion, and whether it is appropriate to
prior and contemporaneous agree-
agreement, through the representations
seek a representation or warranty from
ments and statements on the subject
and warranties, and outside of the
the other party.
matter contained herein.
agreement, through the review of a
party’s documentation and business, as
Construction. This Agreement shall
Miscellaneous Language
be construed as a whole, according to
well as by a physical inspection or ask-
In almost all agreements, the final set
its fair meaning, and not in favor of or
ing questions. Representations and war-
of provisions is typically called miscella-
against any party. The headings of the
ranties written in the framework of a
neous or boilerplate language. Black’s
paragraphs hereof are inserted for
definitive agreement may provide an
Law Dictionary defines boilerplate lan-
convenience only, and do not consti-
aggrieved party with an easier path to
guage as language “used to describe
tute part of and shall not be used to
obtaining relief from a breach, as com-
standard language in a legal document
interpret this Agreement.
pared to a situation where no written
which is identical in instruments of a
Attorneys’ Fees. The Employee shall
representations and warranties have
like nature.” Many attorneys make a
promptly pay (or reimburse, as the
been given.
practice of viewing it as standard lan-
Employer may elect) all costs and
Some customary representations in
an employment relationship include:
guage, and fail to give boilerplate lan-
expenses, including, without limita-
guage the attention it deserves, and in
tion, attorneys’ fees and court costs
some cases, any attention at all.
and expenses, which the Employer
The Employee hereby makes the fol-
may incur in connection with the
lowing representations and warranties
Governing Law and Venue. This Agree-
to the Employer:
ment shall be governed by and con-
enforcement of this Agreement.
Severability. If any term, provision,
(a) The Employee is under no obli-
strued in accordance with the domes-
covenant or condition of this Agree-
gation, restriction or limitation, con-
tic laws of the State of New Jersey
ment, or the application thereof to
tractual or otherwise, to any other
without giving effect to any choice or
any person, place or circumstance,
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NEW JERSEY LAWYER | April 2009
31
shall be held to be invalid, unenforce-
upon an employee, and if a party desig-
cross reference to the applicable section
able or void, the remainder of this
nates this jurisdiction’s law as govern-
where it is defined. In essence, the goal
Agreement and such term, provision,
ing, they may have a problem enforcing
is to allow the reader to quickly and eas-
covenant or condition as applied to
a restrictive covenant that may be essen-
ily identify a defined term.
other persons, places and circum-
tial to a transaction.
Likewise, headings and cross refer-
The inclusion of an entire agreement
ences are useful tools. Legal conclusions
or integration provision, stating the
should not be interpreted from the
Nonwaiver. The failure of either
agreement supersedes all other and prior
heading, but headings should be used to
party, whether purposeful or other-
agreements, also may have an unin-
help the reader quickly locate an appli-
wise, to exercise in any instance any
tended consequence. Often, parties
cable provision. Without the headings,
right, power or privilege under this
have entered into and/or exchanged
a simple answer may require a review of
stances shall remain in full force and
effect.
Agreement or under law shall not con-
documentation prior to the execution
the entire document. Cross references
stitute a waiver of any other right,
of the definitive agreement, such as a
allow a reader to easily access the appli-
power or privilege, nor of the same
confidentiality agreement, a statement
cable defining provision.
right, power or privilege in any other
of work, and the like, which they intend
instance.
to survive and incorporate into the rela-
involved in late-night and last-minute
tionship. However, the integration pro-
negotiations, when all parties want to
Notices. Any notice, request, consent or approval required or permitted
vision may bar such an incorporation.
Finally, most attorneys have been
execute an agreement immediately, as
to be given under this Agreement or
Many attorneys merely cut and paste
pursuant to law shall be sufficient if it
the boilerplate language from a prior
been made. All attorneys must keep in
is in writing, and if and when it is hand
agreement, but appropriate time and
mind that these last-minute changes are
delivered or sent by regular mail, with
thought should be spent on the boiler-
just as significant as the remainder of the
postage prepaid, to the Employee’s
plate language provisions.
document, and should be carefully
reviewed in the context of the agreement.
residence (as noted in the Employer’s
records), or to the Employer’s principal
office, as the case may be.
soon as some last-minute changes have
Other Considerations
If drafted inaccurately, or if a last-
The use of defined terms in an agree-
minute change has an unintended
ment helps avoid needless repetition,
impact on another provision in the
At first blush, this seems innocuous.
and allows more clarity when reviewing
agreement or on an aspect of the trans-
Yet, many issues can arise if not ade-
an agreement. Ordinary words, used in
action, it will not matter months or
quately considered.
the agreement in their normal context,
years from execution that all parties
need not be defined.
requested the revisions be made in haste
In the case of modifications to the
agreement, where there are multiple
It is beneficial to define terms and
parties to an agreement, a modification
phrases that are used uniquely in an
requiring the agreement of all parties
agreement. That said, defining a term or
essentially gives any one party a veto
phrase that is only used once or relative-
right, even if it is not affected by the
ly infrequently is probably unnecessary.
The goal of every scrivener should be
proposed amendment.
If possible, define the term or phrase by
to create a clear, unambiguous and con-
so the agreement could be executed. Do
not rush the final last-minute issues.
Conclusion
Erroneously providing jurisdiction in
a related commonly used word or
cise agreement that reflects the under-
a venue where a party has no ties can
phrase. Defining otherwise will only
standing of the parties. Take your time, be
result in administrative headaches. For
confuse the reader.
instance, a party’s attorney may not be
Definitions should be written with
licensed in the applicable jurisdiction,
initial capitalization and placed within
requiring them to seek new counsel.
the framework of the agreement in a
careful and thoughtful, and the result will
be a clearly defined, binding contract.
Michael F. Schaff is the chair of the cor-
Overlooking or failing to consider
location easily found by the reader.
porate and healthcare departments at
appropriate governing laws, can result
Often, definitions appear in the open-
Wilentz, Goldman & Spitzer, P.A., and a
in a court reviewing a contract, or a pro-
ing or closing section to an agreement
member of the New Jersey Lawyer Maga-
vision of the contract, with disfavor, or
or in an appendix to an agreement. It is
zine Editorial Board. Peter Greenbaum
with an unintended consequence. For
not unusual to have all defined terms in
is a shareholder at Wilentz Goldman &
example, many jurisdictions are reluc-
one location. For those terms not
Spitzer, P.A., and concentrates in corporate
tant to enforce a restrictive covenant
defined in this location, identify the
and healthcare transactions.
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NEW JERSEY LAWYER | April 2009
This article was originally published in the April 2009 issue of New Jersey Lawyer Magazine, a
publication of the New Jersey State Bar Association, and is reprinted here with permission.
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