41
)
BOILER-PLATE CLAUSES IN COMMERCIAL CONTRACTSTABLE OF CONTENTS
I. INTRODUCTION Page 1
II. OPENING PROVISIONS Page 3
A. PARTIES Page 3
1. Identifying Parties to the Agreement Page 3
2. Incorrectly Naming the Parties Page 4
3. Failing to Include the Address Page 5
B. PREAMBLE OR RECITALS Page 5
C. CONSIDERATION Page 7
III. INTERPRETATION Page 8
A. APPLICABLE LAW AND JURISDICTION Page 8
1. Selection of Applicable Law Page 8
2. Selection of Jurisdiction Page 9
B. CURRENCY Page 11
C. HEADINGS· Page 12
D. EXPANDED MEANINGS Page 14
1. Plurals and Gender Page 14
2. References to the Statutes Page 14
3. Schedules Page 15
E. COLLATERAL CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Page 15
IV. CLOSING PROVISIONS Page 16
A. TERMINATION Page 16
B. NOTICES Page 18
C. ASSIGNMENT OF AGREEMENT Page 19
D. TIME IS OF THE ESSENCE Page 21
E. SEVERABILITY Page 23
F. ENUREMENT OF BENEFIT Page 26
1. Heirs, Executors and Administrators Page 26
2. Successors Page 26
3. Assigns Page 27
G. NO PARTNERSHIP OR AGENCY RELATIONSHIP Page28
H. OBLIGATIONS JOINT AND SEVERAL Page 29
I. WAIVER Page 31
Page 2
1. COUNTERPARTS Page33
K. SIGNATURE OF PARTIES Page 33
1. Is it Necessary to Have a Seal? Page 33
2. Is it Necessary to Have a Witness? Page 36
V. CONCLUSION Page 37
BOILER-PLATE CLAUSES IN COMMERCIAL CONTRACTS
Prepared by Pam Haidenger-Bains, Q.c. and Kristin Storey
for the November, 1995 Contracts Seminar
ofthe Saskatchewan Legal Education Society Inc.
I. INTRODUCTION
It has been suggested that the term "boiler-plate" arose during the nineteenth century when metal
type was first widely used for mass produced printing and publications. I Boiler-plate clauses are
commonly used from one contract to another and usually occur in the opening and closing
provisions of a written contract. Most boiler-plate clauses are not created for specific transactions
but are instead common, frequently used and necessary clauses to the drafting ofmost contracts.
The impetus to the use of boiler-plate clauses was the standardization of terms and forms to avoid
and reduce legal risks. Boiler-plate clauses also "confer all kinds of operating leeways and
advantages, all without the need of either consulting counsel from instance to instance or of
bargaining with the other parties. ,,2 For the courts however, documents are read for what they say
and a court may "construe" language into "patently non meaning what the language is patently
trying to say" if it finds inconsistencies between clauses.3 The issue then becomes what is the
courts' role in the interpretation of boiler-plate. In his book, The Common Law Tradition,
Llewellyn suggests that the courts business is not:
"the making of detailed contracts for parties; but court's business iseminently the marking out of the limits of the permissible, and the readingof fair understanding, and the adaptation to the modem form-pad bargainof older rules based on the individualized writing of an earlier day - andstill applicable to such writings. ,,4
)2
Matthew Bender & Co., Warren's Forms ofAgreements, p. PTXII-ILlewellyn, The Common Law Tradition, p. 362.Llewellyn, p. 364.Llewellyn, p. 367.
Page 2
Boiler-plate is still the backbone of all contract drafting and if properly constructed, boiler-plate \\
should minimize the length of the document and neither complicate relations nor create confusion
for the parties. Nevertheless, because scriveners were paid for their verbosity in the past,
boiler-plate clauses tended to use involved and complicated words and clauses. This drafting
practice remains today although the antiquated custom of being paid per page had long since
fallen away.s However, as legal drafting moves more towards brevity and away from "legalese",
boiler-plate too must be expressed in such a manner that the meaning is conveyed in a language
that the parties understand. In their 1991 report on Commercial Agreements Drafting, the British
Columbia Continuing Legal Education Society recognized that lawyers were mistakenly using
"traditional" wording just because they were familiar with it, although these terms and clauses
had not been judicially defined and were subject to varying definitions.6 It may be said that the
little attention paid to these very important clauses is out of proportion to the great importance
they may ultimately hold in resolving a contract dispute.7
Some boiler-plate clauses bear more weight than others, and although boiler-plate may not be
determinative for the contract's outcome, its inclusion may be important to the meaning and effect
of all other provisions in the contract. There is very little extended treatment within anyone
contract treatise that is devoted to the topic of boiler-plate. It is therefore necessary to attempt to
identify the basic contracts principles which may apply to the clauses in order to glean each
clause's intended legal effect, how and when it is used and how its usage may be modernized by
stating the clause in simpler terms.
7
Matthew Bender & Co., p. 1-1British Columbia Continuing Legal Education Society, May 1991 Commercial Draftin~ Aifeements. pp.2.1.14-2.1.15Matthew Bender & Co., p. PTXII-l
Page 3
II. OPENING PROVISIONS
A. PARTIES
Sample Opening:
THIS AGREEMENT made this
____, AD., 19_.
BETWEEN:
day of
[ABC] LIMITED, a body incorporated under the laws ofand registered to carry on business in the
Province of I (referred to as "[ABC)")
PARTY OF THE FIRST PART
AND:
[XVZ] LIMITED, a body incorporated under the laws ofand registered to carry on business in the
Province of , (referred to as "[XYZ)")
PARTY OF THE SECOND PART
Usually the first paragraph of a contract identifies the parties, their address and their status. A
deed or other non-testamentary instrument usually begins with a statement of the names,
addresses and descriptions of the parties.8 Butterworths states that strict legal accuracy may not
be necessary in every opening provision but that every care should be taken to insure that this part
of the document is drafted accurately and clearly to avoid future inconveniences and potential
legal consequences.
1. Identifying Parties to the Agreement
Butterworths suggests that in practice, all persons who intend to take any immediate estate,
interest, right or benefit under an instrument should not normally be merely identified in the
instrument but, if possible, made parties to it.9 This arises, of course, from the fundamental
9Butterworths, Encyclopaedia ofFonns and Precedents, 1962, p. 799.Butterworths, p. 800.
Page 4
principle of privity of contract. All those who may wish to enforce their rights under the
agreement, or against whom the other parties wish to have an enforceable right, should be parties
to the agreement. While the courts have, on occasion, allowed third parties to sue for rights given
to them under an agreement, these exceptions to the doctrine of privity are narrow and difficult to
argue. The drafter should take care in naming persons as parties to the contract that consideration
is flowing from each such party.
There are certain types of documents where, while both parties are identified in the document
(where the Statute of Frauds requires the agreement to be in writing) 10, only one of the parties
needs to be a signatory - for example, mortgages, bills of sale, promissory notes, and guarantees.
This appears to be an acceptable drafting practise in classes of agreements where the one party is
making the single promise to supply the consideration, and the signatory party has all of the rest
of the promises. Upon the supply of the consideration by the non-signatory party, he or she has
by his or her actions accepted the contract, with the single promise having been satisfied (thereby
making it unnecessary to be concerned about issues surrounding suing the non-signatory party on
the contract.) It was held in Mills v. Marriottll that where an agreement for sale of lands was
drawn up and signed by the vendor but not by the purchaser because the purchaser paid in cash
the first instalment at the time of the vendor's signing, the contract was found to be valid and
binding.
2. Incorrectly Naming the Parties
Attention should be paid to changes in name or if a party is known by other names at the time of
construction. Butterworths suggests that the names by which a party is currently known is
sufficient to include at the time of execution. However, if the person or corporation is known by
alternative names or descriptions, these should be included and prefixed by the words "also
known as" .12
10
11
12
Treitel, The Law ofContracts, Fourth Edition, p. IIIMills v. Marriott (1912),3 W.W.R. 841 (S.C.C.)Butterworths,p.801
Page 5
In the case of Burton v. Dougall13, where a name, by which a woman was not known, was used
by mistake in a mortgage, the court held the mortgage to be inoperative except as it operated in
equity. The Judge stated that lI[t]hat he was unable to see any practical difference between this
case and one in which a blank has been left where the name of the grantee should appear. II
Presumably, if there is confusion as to who is to benefit in a contract, the courts would look to the
intention of the parties and extrinsic evidence in order to interpret the said clause.
The drafter should make every effort to ascertain the correct legal name and to determine that the
proposed party has the legal capacity to contract. For example, a common error is that of naming
a trust as a party to the agreement (for example, the IIHarris Family Trustll). Trusts do not exist as
legal entities, and so have no ability to contract. To name the trust as a party immediately gives
rises to issues ofenforceability of the agreement.
3. Failing to Include the Address
The Continuing Legal Education Society ofBritish Columbia suggests that the mailing address of
the parties should be added under their names including the postal codes as this is an indication of
the location of the parties at the time the agreement was entered into. 14 The address is usually
omitted in cases where there can be only one person or body answering to the name and
description, as in the case of some particular corporation, although the address of a trading
corporation is usually given. ls
B. PREAMBLE OR RECITALS
Whereas, Whereas, and Whereas...
Provisions of a contract are commonly divided into three main categories: covenants which are
promises or undertakings; representations and warranties which are promises as to existence or
nature of certain facts; and recitals or acknowledgements of fact. Recitals are often used in the
opening provisions of a contract to assist those not involved in signing to understand the reasons
why the contract was drafted and what parties may be involved and how. However, in older days,
drafters were paid per the word or the page therefore it made economic sense for them to draft
13 Burton v. Dougall (1899),30 O.R. 543 (C.P.)14 British Columbia Society for Continuing Legal Education, p. 3.1.0415 Butterworths, p. 802.
Page 6
long and involved agreements. 16 Traditionally, recitals that introduced the parties included the
word "Whereas"; however the movement towards removing legalese and replacing contracts with
plain English language has contributed to the disappearance of this term. I?
When the words in the operative part of an instrument are ambiguous, the recitals and other parts
of the instrument may be used to discover the intention of the parties and to fix the true meaning
of those words. But clear words in the operative part of an instrument cannot be controlled by
recitals. IS
It may be assumed that the preamble, like headings, holds no enacting force but may be called in
to aid in illuminating provisions of the statute in which they appear.19 In Ontario, the preamble
has been held to be "introductory only".20 In Saskatchewan, Powell v. Kempton Park Racecourse
C021 was cited by the Court of Appeal in holding that "a preamble may afford useful light as to
what a statute intends to reach, and another that, if an enactment is itself clear and unambiguous,
no preamble can clarify or cut down the enactment. ,,22
To assist the court in determining the use to which a preamble may be put, the following clause
will often appear as standard boilerplate:
The preamble to this Agreement shall form an integral part of this Agreementas though repeated at length in this Agreement.
16
17
18
19
20
21
22
Mandel, p. 18Warren's, 90-1-04 and see David Mellinkoff, Le~al Writin~; Sense and Nonsense (Minnesota: WestPublishing Co.), 1982.Chitty's, p. 329 @ 713; "Preamble" has been defmed by Black's Dictionary as "a clause at the beginning ofa constitution or statute explanatory of the reasons for its enactment and the objects sought to beaccomplished. It has been held however to not be an essential part of act, and neither enlarges nor conferspowers."Carswell's Words and Phrases, p. 6-886Haldimand-Norfolk (Regional Municipality) Restricted Area By-Law 5000-33-H, Re (1975), 5 O.M.B.R.303 at 306.Powell v. Kempton Park Racecourse Co., [1899] A.C. 143Powell v. Kempton Park Racecourse Co. as referred to Huron & Erie Mortgage Corp. v. Propp. (1942),[1942] 1 D.L.R. 29 at 35
Page 7
It is still not clear how the absence of the clause stating that the preamble is to form part of the
agreement would be interpreted by the court. It may be assumed that preamble is to be included
at all times to aid in interpretation although without the clear intention of the parties being
expressed, it is unlikely that the preamble in a contract would hold much interpretative power.
C. CONSIDERATION
Sample clause:
NOW THEREFORE WITNESSETH that in consideration of receipt of the sumof $[5.00] and other good and valuable consideration, the receipt andsufficiency of which is hereby acknowledged, the parties hereto covenant,promise and agree as follows:
The basic issues regarding consideration remain the same since we were first taught this principle
in law school. As stated in Fridman in The Law on Contracts,
"The adequacy of the consideration is normally irrelevant...inMacLaughlan v. Soper, a conveyance expressed to be for theconsideration of one dollar was not upset for inadequacy. There may be ageneral equitable jurisdiction to upset a contract for inadequateconsideration, but such inadequacy will not vitiate a contract unless it issuch that it indicates a strongly unconscientious transaction or oneinvolving fraud.23
The insertion of nominal consideration into the opening paragraphs is often, however, merely an
indication of a failure by the lawyer to address his or her mind as to whether true consideration
exists to support the contract. What promise, interest, right or other matter of value is being
given by each party to support the promises of the other party? If the drafter cannot answer this
question, then he or she can appropriately consider the insertion of nominal consideration, or
delivery of a deed under seal.
23 Fridman, p. 90, 91
Page 8
My personal preference, where consideration is obviously present, is to use the following
language:
IN CONSIDERATION OF the mutual promises given in this Agreement, theparties agree as follows:
I find this approach simpler and cleaner. It does, however, require careful reflection on the nature
of the promises being given, and whether they are mutual in nature and sufficient to support a
contract.
III. INTERPRETATION
It is common to insert a number of clauses to aid the court in the interpretation of the agreement.
Some of these clauses are meant to specifically override the common law rules of interpretation;
others provide clarification as to what was intended by the drafter.
Commonly, the clauses regarding interpretation are found at the beginning of an agreement. This
would presumably arise from the concern of drafters that the reader understand the underlying
"rules" of interpretation for the agreement, before he or she begins reading the substantive parts
of the agreement.
A. APPLICABLE LAW AND JURISDICTION
Sample Clause:
This Agreement shall be construed in accordance with and be governed by the lawsof the Province of Saskatchewan. [Any action or claim made by either Party shall bebrought in the Province of Saskatchewan, and the courts of the Province ofSaskatchewan have exclusive jurisdiction to determine such action or claim.]
1. Selection of Applicable Law
If a contract is to be performed out of province or country and one of the signing parties is a
non-resident, it is advisable to include a provision to establish what law is to govern the contract.
)
Page 9
Where the parties have not expressly selected a system of law as the proper law of the contract,
the court will look for the system of law with which the contract has the "closest and most real
connection. ,,24 The court will also look at all of the following circumstances to determine the
proper law including:
• where the contract was made
• where it was to be performed
• the domicile and residence of the parties
• legal form of the contract
• language ofthe contract
• an arbitration clause
• any exclusive jurisdiction clause
Where the parties intentions cannot be implied, that the court will determine that the system of
law with which the contract has the closest and most substantial connection and will consider
only relevant factors existing at the time the contract was made.25
Where the parties have expressly provided that the contract is to be governed by a certain system
of laws, that law will be applied to the contract. The courts will follow the express selection of
the contracting parties as stated in the boiler-plate clause as long as that selection of law to be
applied is bona fide and legal and there is no reason for avoiding the choice on the grounds of
public policy.26
2. Selection ofJurisdiction
A closely related subject is the right to provide in the contract for the jurisdiction in which an
action or other proceeding, including arbitration, must be brought to in the event ofa dispute.27
24
25
26
27
C.E.D., Law of Conflicts, p. 115 @ 138C.E.D., Law ofConflicts, p. 116 @ 139 and 140 and Chitty on Contracts. p. 918 @ 1912C.E.D., Law of Conflicts, p. 114, see Vita Food Products Inc. v. Unus Shipping Co., [1939] A.C. 277 (P.C.)(N.S.)Ludwig Mandel, The Pre.paration ofCommercial A~eements, (1978) p. 69
Page 10
In the past, courts generally refused to enforce provisions under which they were divested of)
jurisdiction. Nevertheless, more recent courts have given effect to such provisions if they are not
unreasonable and do not conflict with the doctrine offorum non conveniens.28
C.E.D suggests that "it must be kept clear that express selection of a system of law to be applied
to the substantive issues of the contract is to be distinguished from jurisdictional issues of forum
selection clauses and forum conveniens. The latter concerns the forum in which the issues will be
determined, not the system of law to be applied to substantive issues."29 In Toronto-Dominion
Bank v. Martin where the proper law of contract was that of British Columbia and the property
was located in B.C., the Saskatchewan court had jurisdiction to hear an action on the mortgage of
the said property because to refuse a right of action on a foreign contract might be tantamount to
destroying the contract, which is not the intention of the Saskatchewan law. ,,30
The C.E.D. states that "parties to a contract may, by its terms, provide that any disputes arising
under the contract are to be referred to the exclusive jurisdiction of the courts of a particular
forum. ,,31 However, where the parties have chosen a system of law as the proper law of the
contract, that does not mean that any disputes arising out of the contract can be heard only in the
forum of the proper law."32 In Harrington v. Industrial Sales Ltd. and Frederick Parker Limited
et aP3 the parties had not conferred exclusive jurisdiction on the English court, only on the
English law so that the jurisdiction of the Saskatchewan court had not been ousted.
Moreover, courts have an inherent jurisdiction to stay any action brought in breach of the
provisions ofan exclusive jurisdiction clause.34 The C.E.D. states that "any judgment recovered in
a forum expressly selected by the contracting parties will be a good ground of action elsewhere.
This is the case even where the contract has no connection to the jurisdiction.3s However, where
it is found that an exclusive jurisdiction clause is contrary to a statutory provision of the forum or
28
29
30
31
32
33
34
3S
Mandel, p. 69.C.E.D., Contract, p. 115 @ 137Toronto-Dominion Bank v. Martin, [1985] 4 W.W.R. 557 at 560 (Sask Q.B.)C.E.D., Law ofConflicts, p. 71 @ 27.C.E.D., Contracts, p. 115 @ 137Harrington v. Industrial Sales Ltd and Frederick Parker Limited et al., [1973] 2 W.W.R. 330 (Sask. Q.B.)See Hi-Dro Electric Co. v. Commonwealth Construction Co. (1984),36 Sask. R. 182 (Q.B.)C.E.D., Law ofConflicts, p. 114 @ 136
Page 11
the contract containing the provision is void, the court will refuse to recognize the clause and will
grant a stay ofproceedings.36
The issue here is when does a contractual clause "oust" the jurisdiction of another possible court?
E.K. Motors Limited v. Volkswagon Canada Ltcf1 in citing an equivalent court decision of
Newfoundland held that:
"In order for a contract to oust the jurisdiction (of a specific court inwhich one of the parties resides,) it would be necessary to have stated thatintention in express terms in the contract. This could have been done verysimply be merely adding the word 'exclusive' before 'jurisdiction' in theclause. This has not been done, and it may well be that the partiesdeliberately refrained from doing anything more than giving a concurrentjurisdiction to the Ontario Courts."
The more difficult question to answer is when you might wish to provide for the exclusive
jurisdiction of a particular court. In most litigation, it is often preferable to commence the action
in the jurisdiction where the defendant has the most assets, so as to avoid potential problems in
the registration and enforcement of the judgment. In cases where the potential litigants will be
looking for in personam judgments, such as damages or injunction, it is therefore generally
preferable to leave the issue of forum silent, so that the plaintiff may choose the appropriate
jurisdiction at the time of commencing the action. In actions where the potential litigants will be
seeking an in rem judgment, such as one involving the title to land, it is appropriate to vest
exclusive jurisdiction in the courts which have the power to make and enforce the order.
B. CURRENCY
Sample Clause:
All references in this Agreement to dollars are expressed· in the currency ofCanada.
36
37C.E.D., Law ofConflicts, p. 72 @28E.K. Motors Limitedv. Vo/kswagon Canada Ltd., [1973] 1 W.W.R. 466 (Sask C.A.) see
also Westcott v. A/sco Products ofCanada Ltd. (1960),26 D.L.R. (2d) 281 (Nfld.C.A.)
Page 12
If the form of currency to be used in the performance of the contract is not expressly provided for,
the currency in which moneys may be made payable depends first on the intention of the parties.
If the intention cannot be found, a finder of fact may gather from the circumstances or from the
course of dealing with the parties, what currency was to be utilized. In Johnson v. Pratt38, the
Defendant made a mortgage in Winnipeg to cover Winnipeg property which included a clause
that read "That I will pay to the said mortgagee the above sum of $43,000 in gold or its
equivalent at the office of the mortgagee in the City of Detroit". The court held the Plaintiff have
payment "[f]or an amount in Canadian dollars which would have bought the principal due to the
Plaintiff in United States dollars as on said date."
In the absence of anything to the contrary, the intention of the parties may be presumed from
words expressing weights and measures such as "bushel" or "kilo" which are to have the meaning
which they have at the place of delivery.39 Therefore, in the case of a contract of shipping, the
weights and measures at the place of loading and in the case of a contract of sale, at the place of
delivery under the contract may be held to determine the currency ofthe contract.
A currency clause should not be necessary when all of the parties are located within Canada, and
the contract is fully performed within Canada.
c. HEADINGS
Sample Clause:
The division of this Agreement into articles and sections, provision of atable of contents and the insertion of headings are for convenience ofreference only and do affect the construction or interpretation of thisAgreement.
Drafters commonly use headings in an agreement to provide organization and to make the
document easier to read. The concern, however, is that the heading will be used later in
interpreting the contract to give a meaning to the actual clause which was not intended.
38
39Johnson v. Pratt, [1934] 1 W.W.R. 321 (Man. K.B.)C.E.D., Contracts, p. 118 @ 144
Page 13
The general rule is that "[w]here possible, effect is to be given to all terms of the contract and
none are to be rejected as surplusage or as having no meaning. ,,40 While this general principle
makes reference to terms of the contract, there is no reason why the court could not, in
appropriate circumstances, extend the principle to include headings. Headings can, for example,
form part of the interpretation of a statute. In Lang v. Kerr, Anderson & C041 the court found that
"headings" to sections of an Act of Parliament are to be looked upon as marginal notes, for they
show that Parliament had carefully and analytically divided the Act into those different parts.
Headings, like marginal notes are included in the body of a statute but are not a grammatical part
of the enacted words. However, they have a higher status than marginal notes. In Phillips v.
Robinson42 a heading was held to form part of the statute: "that the sections under a heading must
be interpreted with reference to the heading, except where such an interpretation would lead to a
manifest absurdity, or would clearly run counter to the object of the statute when considered as a
whole. ,,43
Because headings arid any resulting table of contents are summary in nature, and cannot reflect
the full implications of the clauses to which they refer, most drafters prefer to specifically exclude
headings and the table of contents from being used in an interpretation of the contract.
The sample clause above also provides that no inferences shall be drawn from the division of the
agreement into articles and sections. If the drafter believes such division in fact aids in the
grammatical interpretation of the agreement, he or she may wish to delete this portion of the
sample clause.
40
41
42
43
C.E.D., Contracts, p. 443 @ 496Lang v. Kerr, Anderson & Co. (1878), 3 A.C. at 536Phillips v. Robinson (1932), 133 D.L.R. (3d) 189 (P.E.L,C.A.)Words and Phrases, p. 4-661
Page 14
D. EXPANDED MEANINGS
Sample Clause:
In this Agreement and its attached schedules, unless there is something in thesubject matter or context inconsistent with the same:
a) the singular includes the plural and the plural includes the singular;
b) a reference to any statute extends to and includes any amendment orre-enactment of such statute;
c) this Agreement (excluding the schedules), overrides the schedules; and
d) the masculine includes the feminine and neuter gender.
1. Plurals and Gender
Sub-paragraphs (a) and (d) of the sample clause clearly attempt to deal with common issues
relating to the drafting process. Many documents (particularly form documents) are drafted in the
first person singular, masculine gender. While increasingly documents are drafted in both the
masculine and feminine gender, there is no doubt that it is a painful, tedious and often
unsuccessful process to go through a document for the purpose of ensuring the tense and gender
matches the parties. It is because of these problems that the plural/singular, masculine/feminine
interpretation clauses will remain with us. Particularly in documents where the drafter makes
some attempt to customize the use of pronouns, he or she would be loath to have an accidental
omission or use of the improper pronoun construed against his or her client.
2. References to the Statutes
The statutory reference in sub-pargraph (b) of the sample clause is, of course, intended to prevent
a possible interpretation problem where the court is uncertain as to whether internal statute
references were intended to apply only to the statute which existed at the time the contract was
entered into, or whether it included subsequent amendments or re-enactments. This subparagraph
is of limited or no importance where the contract is concluded within a very short time frame (for
example, the sale of assets), or where there are no statutory references in the agreement. If,
however, the contract will continue to be effective over a longer time period (for example, a
Page 15
partnership agreement), and there are statutory references in the agreements, then it is important
to include a clause such as that shown.
3. Schedules
Sub-paragraph (d) of the sample clause simply represents a choice on the part of the particular
drafter. If no reference is made as to whether the main body of the agreement or its schedules is
paramount, then under the general rules of interpretation, if there are apparently conflicting terms
in the agreement, the court will strive to harmonize such terms, unless they are so clearly
repugnant that the effect of one clause virtually destroys that of another, in which case a later
qualifying clause is to be rejected in favour ofan earlier clause creating a right or obligation.44
E. COLLATERAL CONTRACTS
Sample Clause:
This Agreement, including schedules and all the other documents to bedelivered under this Agreement, form the entire agreement between theParties and supersede all prior agreements, understandings, negotiations anddiscussions, whether oral or written, of the Parties. There are no warranties,collateral warranties, representations or other agreements between the Partiesin connection with the subject matter except as specifically set out in thisAgreement.
This particular clause is generally recommended for all forms of contracts. Its purpose is to
override the doctrine of collateral contracts. As stated by the House of Lords in Heilbut, Symons
& Co. v. Buckleton:
n[i]t is evident, both on principle and authority, that there may be acontract the consideration for which is the making of some other contract.'If you will make such and such a contract I will give you one hundredpounds,' is in every sense of the word a complete legal contract. It iscollateral to the main contract, but each has an independent existence, andthey do not differ in respect of their possessing to the full the characterand status ofa contract. n45
44
45C.E.D., Contracts, p. 443 @ 496[1913] A.C. 30 (H.L.)
Page 16
As discussed by Fridman, the doctrine has been accepted and expanded by Canadian courts,the
effect of which enables "...an aggrieved party: (a) to evade the parole evidence rule; (b) to escape
the consequences of an exemption or similar clause; and (c) to widen the scope of liability for
damage caused to him by a failure to perform contractual duties. ,,46
In inserting or agreeing to the inclusion of this clause, the drafters must be certain that the final
agreements and other documents fully capture the intention of the parties and any collateral
representations or warranties which induced any ofthe parties to enter into the agreement.
IV. CLOSING PROVISIONS
Closing boiler-plate is, of course, generally found at the end of an agreement, with the negotiated
portions thus being sandwiched in between. Closing boiler-plate tends to deal with an assortment
of standard miscellaneous issues. Each clause should be examined carefully to first determine
whether it is necessary, or if necessary, whether the clause requires modification.
A. TERMINATION
This Agreement and all provisions hereunder shall terminate immediately onthe earlier of the following events to occur, namely:
a) ____ days written notice given by one Party to the other Partyhereto; or
b) the dissolution, termination of existence, insolvency, business failure,appointment of a receiver of any part of the property or assignment forthe benefit of creditors by or against either of the Parties.
Termination clauses are generally only necessary for contracts having continuing rights and
obligations (for example, unanimous shareholders' agreements, distributorship agreements,
employment agreements.) Termination clauses should not be necessary for contracts which are
inherently of limited duration (for example, the sale of specific goods.)
46 Supra, p. 506
Page 17
On occasion, the parties have neglected to adequately provide for the termination of contracts
having continuing rights and obligations. Sometimes they have failed to include any termination
clause at all, or sometimes they have provided only for termination upon default and neglected to
provide for termination without cause but upon reasonable notice.
The courts in such case are asked to imply a term which permits termination upon reasonable
notice. In commercial contracts (as opposed to, for example, contracts involving the lease of
land), the courts will attempt to determine whether the contract was intended to be perpetual, or
whether it was intended to be terminable upon reasonable notice.47 As with all interpretation
applications, the court then looks to the contract as a whole for some indication as to the intention
of the parties.
As discussed in the decision of Treen Gloves & Safety Products v. Degil Safety Products,48 the
courts have on occasion held that "[w]here express provisions for termination in specific
circumstances are included in a contract for services containing no time limit on its duration the
Court will not import other terms permitting termination either on reasonable notice or by reason
of changed circumstances. ,,49 The Court in the Treen decision, however, determined that "...a
commercial contract such as this one almost requires a termination clause. The concept of a
perpetual distribution agreement is difficult to entertain. The plaintiff company is a business
organization and must be presumed to be aware of the facts of business life. ,,50 The Court was
therefore prepared to imply a clause permitting termination without cause, upon one year's notice.
The other issue which is sometimes raised in relation to commercial contracts is whether a
contract without a fixed termination date, and which is therefore potentially perpetual in length,
will offend the rule against perpetuities, and result in the entire contract being void. What must
be remembered, however, is that the rule against perpetuities concerns itself as to when the
47
48
49
so
See, for example, Treen G/oves & Safety Products v. Degil Safety Products (1990), 33 C.P.R. (3d) 74(B.C.S.C.)Supra.Treen G/oves & Safety Products v. Degil Safety Products, supra, p. 79, quoting from headnote of Cooke v.CKOYLtd (1963),39 D.L.R. (2d) 209Supra, p. 81
Page 18
parties' interests vest, not how long the agreement lasts.51 Therefore, so long as all of the parties \
have an absolute vested interest in their rights under the agreement, the drafter does not need to
concern himself or herself with the rule against perpetuities.
B. NOTICES
Sample Clause:
Except as otherwise specified in this Agreement, any notice shall be givenin the following manner:
a) The notice shall be given in writing, by delivery in person or bydelivery by telecopier or by mail properly addressed to each Party towhom such notice is given, with postage and charges prepaid. Anotice given by delivery or telecopier shall be deemed given onlywhen received by the Party to whom such notice is directed. A noticesent by mail shall be deemed to be given on the [third] working dayfollowing the date of such mailing, except in the event of a postalstrike.
b) Each Party's proper address shall be the following until such Partyspecifies another address by written notice to all other Parties:
(Name of Party):
Attention:
Telecopier:
(Name of Party):
Attention:
Telecopier:
c) In determining the number of days for the giving of the notice, theprescribed number of days shall be calculated exclusively of the firstday and inclusively of the last; and where the time limited for thegiving of a notice falls upon a Saturday, Sunday, or statutory or civicholiday, the time so limited extends to the business day first followingthat day which is not a Saturday, Sunday, statutory or civic holiday.
51 Re Chardon [1928] 97 L.J. Ch. 289.
Page 19
A notice clause is not necessary when there is no reason for either party to give notice under the
agreement, or where perhaps the client would prefer that the method of giving notice be
undefined.52
Sometimes a problem arises where one of the parties moves and then it is questionable as to
whether notice should be sent to the original address or to the new one. It is recommended that
notice should be sent to the address provided for in the contract and a duplicate copy sent to the
newaddress.53
The case Lister v. Bannerman54 raises the issue of proper address in an agreement for sale. In
Lister v. Bannerman, a contract was made and stipulated that acceptance could be sent by the
Defendant to the Plaintiff as stated in the agreement to "William Simpson, Lister, of the parish of
St. Paul in Manitoba, farmer." However, when the Defendant sent his acceptance to the post
office in the St. Paul parish, the Plaintiff refused to accept. The court held that the Defendant did
not act unfairly because he sent it not to the parish of St. Paul but to the Post Office of St. Pau1.55
The contract was held to be complete and the Defendant was entitled to specific performance.
C. ASSIGNMENT OF AGREEMENT
Sample Clause:
Neither this Agreement nor any rights or obligations under this Agreement areassignable by either Party without the prior written consent of the other Party;[except that any Party is entitled to assign its rights and obligations under thisAgreement to an affiliate of the Party or, in the case of an affiliate to its parentcompany, with the consent of the other Party ,J which shall not be unreasonablywithheld.
The ability to assign the agreement, either with or without consent, is often a negotiated part of
the Agreement, and so in a sense is not typical boiler-plate. The assignment clause always
52
53
54
55
Continuing Legal Education, 3.1.15Mandel, p. 72.Lester v. Bannerman (1911),19 W.L.R. 182 (Man. K.B.)Lesterv. Bannerman, pp. 183-184.
Page 20
warrants careful examination during the drafting process, to ensure that the parties' rights are)
adequately protected.
Fridman lays out the history of assignability and enurement of benefit stemming from R. v.
Smith56, when it was considered loathe to admit to the possibility of substituted or vicarious
perfonnance.57 R. v Smith held that "[t]hat a party who enters into a contract for the perfonnance
of work is not entitled by a mere assignment to another person to substitute the assignee for
himself, so as to delegate to the assignee his own rights and liabilities under the contract, without
the consent of the other party to the. agreement. ,,58
However, into the twentieth-century, the House of Lords in an Alberta case detennined that
"[t]here is a clear right to assign a contract where no services depending on individual skill or
personal confidence are required."59 This trend was repeated in Sullivan v. Gray where Hogg, J.
stated "[t]he law is well established that where the skill or knowledge or some other personal
quality of a party with whom a contract has been made is a material ingredient of the contract, the
contract can be perfonned by the contracting party alone, and not by an assignee. ,,60 Because the
common law creates some uncertainty as to whether or not assignment is pennitted if the contract
is silent, this issue is usually best addressed by including it in the boiler-plate.
In preparing the assignment clause the drafter should first address whether the any assignment of
the contract should, in the circumstances, be pennitted. Commercial contracts often rely upon the
expertise of a particular person, generally the sole shareholder and director of the corporation, to
carry out the tenns. These types of agreement usually prohibit any kind of assignment. The
drafter should also consider whether he or she wants to prevent indirect assignment, such as by a
prohibition on the sale of the shares of the company, or by including additional termination
events arising from a transfer of voting interests.
56
57
58
59
60
R. v. Smith (1883),10 S.C.R. 1 (S.C.C.)Fridman, The Law of CODtract, p. 687.R. v. Smith p. 55See Tolhurst v. Assoc. Portland Cement Co., [1903] A.C. 414 (H.L.)Sullivan v. Gray, [1942] a.W.N. 329 or see Maloney v. Campbell, [1942] 3 D.L.R. 269 at 271 (Ont. H.C.)
Page 21
If no assignment is to be permitted, then the drafter should also consider whether he or she also
wishes to prohibit subcontracting. The general rule is that where assignment is not permissible,
the party may generally subcontract with a third party to carry out the required duties.61
It is most usual to provide that consent cannot be unreasonably withheld. The majority of the
case law on withholding of consent is in the area of landlord and tenant. The current, more
liberal approach taken is that, in determining whether or not consent has been unreasonably
withheld, the court will consider the surrounding circumstances, the commercial realities of the
marketplace and the economic impact ofan assignment on a landlord.62
D. TIME IS OF THE ESSENCE
Sample Clause:
Time is in all respects of the essence in this Agreement.
"Time is of the essence" has been defined by Black's Dictionary to mean "performance by one
party at time or within period specified in contract is essential to enable him to require
performance by another party." The time for performance in a contract is usually made a
condition and a promise of the contract. However, if time is to be of the essence, it should be
declared as such in the contract. When this phrase is in a contract, it means that a failure to do
what is required by the time specified is a breach of the contract. Therefore, mere designation of
a particular date does not make time of the essence but in absence of the clause making it such,
equity does not regard time as of the essence. 63 Although it is generally accepted that time is of
the essence in law, a modern day court would likely ignore substantial delays in time if the other
party had not been injured by the delay, if there was no express provision to this effect.
61
62
63
C.E.D., Contracts, p. 649 @ 892Federal Business Development Bank v. Starr (1986),28 D.L.R. (4th) 583Mandel, p. 51
Page 22
It has been suggested that the "time is of the essence" clause like other boiler-plate clauses should
be used cautiously and only when it is necessary and advisable to do so. One example where to
include a time is of the essence clause would be unnecessary is when there are no time limitations
in the agreement.64 However, aside from express provisions, time will impliedly be of the
essence in certain contracts such as contracts for sale of goods or contracts that cover activities
such as the drilling of oil wells that concern sudden and perhaps unpredictable events.65 If an
actual "time is of the essence" clause is absent, a court may interpret phrases such as "at once" to
indicate the need for immediate action.66
Nevertheless, despite an express provision for time is of the essence, specific performance will
not be denied where delay is caused by circumstances beyond the parties' control and where the
terms of the agreement are inconsistent with timing deadlines. In the case Canwest Pacific
Television Inc. v. 147250 Canada Ltl1'7., the British Columbia Supreme Court held that the
Plaintiffs were entitled to specific performance because the Defendant could not rely on "time is
of the essence" provisions when there was no express or implied timing condition and when the
delay was caused by a party outside to the contract.
Likewise, where an agreement of sale included the clause that time was to be of the essence but
where the Defendant vendor gave several extensions of time to the Plaintiff to secure a letter of
credit, the court held that the Defendant had waived this provision. In Sims-Battle-Brewster &
Associates Inc. v. Simpson & Hansen Insurance Ltd.68 the Defendant was found to have had legal
advice and knew that he could terminate the agreement upon reasonable notice but continued the
discussions and agreement as subsisting and could therefore not raise this clause at his liking to
terminate the agreement. The court held that it would be inequitable and unjust for the defendant
to insist that time was of the essence even ifwith each extension that term implicitly applied.69
64
6S
66
67
68
69
British Columbia Society for Continuing Legal Education, 3.1.15C.E.D., p. 525 @ 663See Oldfield y. Dickson (1889),18 O.R. 188 at 190 (H.C.)Canwest Pacific Television Inc. v. 147250 Canada Ltd, (1988), 30 B.C.L.R. (2d) 145 at 153 (C.A.)
Sims-Battle-Brewster & Associates Inc. v. Simpson & Hansen Insurance Ltd, (1994), 18 Alta. L.R. (3e)119The Canadian Abrid~ement,Second Edition, case summary @ 443
Page 23
Mandel suggests in The Preparation of Commercial Agreements, that if you intend time to be of
the essence, then include this express provision in your document. If you wish a right to cancel
because of the other party's failure to perform within the time limited in your contract, he advises
that you explicitly include such right, while also reserving all other rights, at law or at equity,
which your client may have.70
In conclusion, a party relying on a "time is of the essence" clause must show herself or himself to
be ready to carry out the agreement without delay and must promptly make known that the
contract will be considered abandoned it the other party does not complete performance by the
stipulated time.71
E. SEVERABILITY
Sample Clause:
Each of the covenants, provisions, articles, sections, and other subdivisions inthis Agreement is severable from every other covenant, provision, article,section, and subdivision; and the invalidity or unenforceability of anyone ormore covenants, provisions, articles, sections, or subdivisions of thisAgreement shall not affect the validity or enforceability of the remainingcovenants, provisions, articles, sections, and subdivisions hereof.
The issue addressed in this type of clause is the concern that if one or more paragraphs may be
found void or unenforceable, the remainder of the contract will survive. Consideration should be
given as to whether this is appropriate in all cases. For example, if a covenant in restraint of trade
contained in a distributorship agreement is found to be unenforceable, would the person granting
the distributorship rights in fact want the remainder of the agreement to survive, or would he or
she prefer to have the agreement terminate, with a new agreement then being negotiated?
The discussion of severance is most often found in relation to illegal contracts. If the tenns of a
contract are illegal, are against public policy or where the whole contract is prohibited by statute,
70
71Mandel, p. 52.See Blackstock v. Jeamen Farms Ltd. (1981) 13 Sask. R. 119 (C.A.)
Page 24
no action can be brought by the guilty party on the contract, although other parts if they were to ')
stand alone, would be unobjectionable. The issue becomes whether the unobjectionable clause
may be enforced and the objectionable disregarded or "severed".72 Several older English cases
have held that if the legal is separable from the illegal clauses of the contract and not dependant
on it, that the illegal part only will be void whether the illegality be created by statute or by the
common law.73 Only where the illegal cannot be severed from the legal, will the court hold the
entire contract to be void.
Chitty on Contracts, in the chapter on "Illegal Contracts", states that there are two underlying
principles to severance. First, the courts will not make a new contract for the parties, whether by
rewriting the existing contract, or by basically altering its nature. If a clause or part of clause is
able to be severed, it must leave a reasonable covenant that can be enforced in a court of law.
Chitty states that a court may do this by "running a blue line through the offending part". This
was done in Dominion Art Co. v. Murphy'4 where illegal contracts for restraint of trade were held
to be severable as the remainder of the termination of employment contract was still fully
enforceable. If the contract is made on several considerations, the court will not strike out words
of a contract if to do so would alter entirely the scope and intention of the agreement and create
two covenants out of one. The true test has been said to be if the illegal promise is substantially
the whole or main consideration for the promise now sought to be enforced, the court will not
sever it'S
Secondly, the courts will not sever the unenforceable parts of a contract unless it accords with
public policy to do so. In the example of an illegal consideration, if part of the promise of either
party is so grave as to taint the whole contract, there is no ground of public policy requiring the
court to assist either party by severing the offending partS.76 In this example, a clause incapable
of severance was one that was illegal as opposed to void and one such as a contract to defraud the
government or perform another illegal act. In a merely void consideration, it is likely that a court
72
73
74
7S
76
Chitty on Contracts, p. 494 @ 1049-1052see Cf Electrical Trades Unionv. Tarlo [1964] Ch. 720, 731.Dominion Art Co. v. Murphy (1923), 54 a.L.R. 332 (C.A.)Chitty, p. 497 @ 1055Chitty, p. 498 @ 1056-1057.
Page 25
would infer from the intention of the parties as stated above. As a matter of public policy, a
clause should only be severed where it is clearly severable or where the clause is "[o]f trivial
importance, or merely technical, and not a part of the main purpose and substance of the
clause. ,,77
In summary, the case authority on severance is stated in Nicolene Ltd v. Simmonds78 where one
party included the term that the "usual conditions of acceptance" were to apply. The court found
that there were no usual conditions of acceptance but held that there was a distinction between a
clause that is meaningless which can be ignored and a clause that is yet to be agreed upon
implying that there may be no contract at all. Denning, L.J. held that:
"[t]he clause was so vague and uncertain as to be incapable of any precisemeaning. It is clearly severable from the rest of the contract. It can berejected without impairing the sense or reasonableness of the contract as awhole, and it should be so rejected. The contract should be held to begood and the clause should be ignored. The parties themselves treated thecontract as subsisting, and they regarded it as creating binding obligationsbetween them and it would be most unfortunate if hate law should sayotherwise. ,,79
The court wanted to avoid the situation where parties may scour a contract in search of a
meaningless term in order to void a contract and avoid a breach. Nicolene v. Simmonds has been
applied in Continental Insurance Co. v. Law Society ofAlberta (1984), 14 D.L.R. (4th) 256 at
263 (Alta. C.A.) and Consumer's Co-operative Refineries Limited v. NewGrade Energy Inc.
(1989) 81 Sask. R. 178 at 189 (Q.B.) to hold that the clause must be superfluous, subsidiary and
truly meaningless to be ignored, or in effect severed.
) 77
78
79
Mason v. Provident Clothing, [1913] A.C. 724.Nicolene Ltd. v. Simmonds, [1953] 1 All E.R. 822 (C.A.)Nicolene Ltd. v. Simmonds, p. 826
Page 26
F. ENUREMENT OF BENEFIT
Sample Clause:
This Agreement shall enure to the benefit of and be binding upon the respectiveheirs, executors, administrators, successors and permitted assigns of theParties.
The use of this clause must be considered carefully in conjunction with the nature of the contract,
and any restrictions which may exist on the ability of a third party to take over the execution of
the contact. For example, computer licenses are often set up as personal licenses granted to the
original purchaser, with no voluntary or involuntary right to assign, transfer, or otherwise deal
with the license. It then becomes contradictory to insert a clause that the agreement "enures to
the benefit of' heirs, executors, administrators, successors and assigns.
1. Heirs, Executors and Administrators
Fridman states that death ofeither contractual party does not interfere with the continuation ofthe
contract unless the contract was based on personal considerations, skill or confidence.80 In all
other contracts, any rights of action accruing either against a party or to him upon his death would
be brought by or against his estate. Therefore, except in the situation of "personal contracts",
there is a, involuntary and general assignment of all contractual rights and liabilities which results
from death, regardless of the wishes of the deceased contractual party.
In order to avoid this general consequence, it may be that, in appropriate circumstances, the
drafter will wish to have the obligations binding upon the estate, but will choose the exclude the
enurement of the benefit of the contract to the estate, so that any remaining debt obligation of the
deceased will continue, but the rights granted under the agreement (such as for an auto
dealership) are terminated.
2. Successors
Black's Law Dictionary defines "successor" to mean "[o]ne that succeeds or follows; one who
takes the place that another has left, and sustains the like part or character;...[and] with reference
80 Fridman, p. 690.
Page 27
to corporations, generally means a corporation which, through amalgamation, consolidation, or
other legal succession, becomes invested with rights and assumes burdens of the first
corporation."
The full meaning and extent of the word "successors" is not clear; for example, where a city
annexed certain county lands which were subject to a certain franchise fee, the city was held not
to be the successor to the county.8) Similarly, a present bishop could not be sued on the covenant
of a mortgage given by his predecessor simply because he was his successor in office.82
Presumably, however, the scope of the word should be sufficient to include involuntary transfers
of rights and obligations, such as through bankruptcy, amalgamations and changes in the partners
to a partnership. The drafter must then decide whether he or she wishes in fact wishes to confer
both the obligations and the benefits of the contract upon all successors to the original parties.
3. Assigns
Again, the drafter will want to ensure that he or she does not inadvertently create a conflict
between any restrictions which have been imposed on assignment, and the use of this clause,
which states that the contract enures to the benefit of assignees. For that reason, many drafters
use the phrase "permitted assigns".
On occasion, the drafter has not included any clause speaking directly to assignment, but has
included a clause stating that the agreement is to be binding upon and enure to the benefit of
assigns. The inclusion of this clause has then be sufficient to allow the courts to hold that the
contract is assignable. In the situation where the contract failed to include the clause that it was
to enure to the benefit of successors and assigns, it has been argued that while an agreement may
be silent, as long as there is no bar to assIgnment, the assignment in equity is good.83
81
82
83
CountY a/Wentworth v. Hamilton Radial Electric R. Co. (1916),54 S.C.R. 178Paris v. The Bishop a/New Westminister (1897),5 B.C.R. 450.Hahn v. Swan River, Town 0/(1980), 12 Man. R.(2d), p. 58 at 60.
Page 28
G. NO PARTNERSHIP OR AGENCY RELATIONSHIP
Sample Clause:
The rights, duties, obligations and liabilities of the Parties hereto shall beseparate and not joint and collective. Each Party shall be responsible only forits obligations as set out in this Agreement. It is not the intention of the Partiesto create a commercial or other partnership or agency relationship betweenthe Parties, and this Agreement shall not be construed so as to render theParties liable as partners or as creating a commercial or other partnership. NoParty shall be deemed to be or shall hold itself out to be the agent of the otherParty.
This particular clause does not appear in all commercial contracts. It is most often used where
two parties are entering into an agreement to form a long-term commercial relationship, such as
between a manufacturer and a wholesaler, and the parties wish to eliminate any possible
implication that they are partners, or that they have a principal/agent relationship. Both
partnership and agency relationships can result in liability flowing through to the other party.
Agency has been defmed by Fridman in The Law of A~ency as the "relationship that exists
between two persons when one, called the agent, is considered in law to represent the other,
called the principal, in such a way as to be able to affect the principals' legal position in respect of
strangers to the relationship by the making of contracts or the disposition of property.1184 In
Yorkshire Trust Co. v. Empire Acceptance Corp., agency is held to be a "[l]egal relationship
founded upon contract and generally cannot be imposed on parties in the absence of an agreement
between them as principal and agent. ,,85
As between principal and third party regarding contractual liability, the basic law of agency
applies where an agent has made a contract with a third party on behalf of a disclosed principal
who has authorized the agent to enter such a contract. In this situation, the principal can sue and
be sued by the third party on such a contract.
84
85Fridman, Law QfA~ency, 6th Ed., p. 9.See Yorkshire Trust Co. v. Empire Acceptance Corp. (1986) 69 B.C.L.R. 357 at p. 361
Page 29
In Cox v. Hickman as cited in Sproule v. McConnell, n[t]he liability of one partner for the acts of
his co-partner is in truth the liability of a principal for the acts of his agent. Where two or more
persons are engaged as partners in an ordinary trade, each of them has an implied authority from
the others to bind all by contracts entered into according to the usual course of business in that
trade. n86 Therefore, the principal is under a duty to reimburse and indemnify the agent against all
liabilities incurred in the execution ofhis authority.87
H. OBLIGATIONS JOINT AND SEVERAL
Sample Clause:
Where the reg. Debtor] is more than one Person, all obligations under thisAgreement are joint as well as several.
Any debate regarding joint and several liability most often arises in the context of a sale of a
business, where those selling shareholders or partners who have not been personally involved in
the management of the target business wish to restrict their liability on the representations and
warranties. There is also sometimes a concern expressed by those joint vendors having the
deepest pockets that they do not wish to be vulnerable to being the only persons sued, in the event
a litigated issue should arise.
Several liability is defined as the situation when two or more persons make separate promises to
another, whether by the same instrument or by different instruments.88 Therefore, if A and B
covenant with C that they will each pay C $5.00, each is liable to pay $5.00.
Joint liability arises when two or more persons in the same instrument jointly promise to do the
same thing. There is only one obligation and performance by one party would excuse the other
from performance.
86
87
88
See Sproule v. McConnell, [1925] 1 D.L.R. 982 (Sask C.A.)Chitty on Contracts, Vol. 2, p. 66 @ 2118Chitty on Contracts, Vol. 1, p. 503, @ 1071
Page 30
Therefore, joint and several liability occurs when two or more persons in the same instrument
jointly promise to do the same thing and also severally make separate promises to do the same
thing. There is one joint obligation and as many several obligations as there are joint and several
promisors. The presumption in law however, is that a promise made by two or more persons is
joint so that a parties must use express clauses to make their obligations joint and several. E.A.
Towns v. Harvel9 laid out the rule of law from White v. TyndalPO that:
Thus a promise by A and B that they will do a thing is but one promise,namely a joint promise by both. Again, a promise by A and B that they orone ofthem will do a thing is but one promise; for the words of severanceattach only to the thing to be done and not to the promise which is stilljoint. But a promise by A and B and each of them that they will do athing is not one promise, for the words of severalty attach to the promise,and there are in truth three promises, a joint promise by both and a severalpromise by each. ,,91
As discussed by Fridman in The Law of Contracts:
"The importance of the distinction lies in the consequences which flowwith respect to (1) the right of each individual contractor to sue on thecontract individually, or his obligation to be sued individually, and (2) theeffect which settlement with one creditor or settlement by one debtor mayhave upon rights or liabilities respectively of the other creditors ordebtors.
"If the parties are jointly creditors or debtors, then one single creditor maynot sue on his own behalf, unless he can establish that he has sufferedsome specific, separate damage by the debtor's wrongdoing, not a damagecommon to all creditors. Similarly, if each debtor is jointly liable then theproper action is against all jointly. On the other hand if there are separateliabilities each must be sued separately, and there can be no joint actionagainst the joint debtors, or by and on behalf of the various creditors.Where there are separate liabilities, the damages payable to the differentcreditors may be different amounts.92
89
90
91
92
E.A. Towns v. Harvey, [1945] 2 D.L.R. 782 at 784 (B.C.S.C.)White v. Tyndall (1888), 13 App. Cas. 263White v. TyndallFridman, p. 182
)
Page 31
It is evident from the above discussion that if a party wishes to specifically limit his or her
liability, that the drafter must ensure that the liability is several, rather than joint. In addition, the
limit of the liability should be specifically addressed. Sinclair, in Warranties and Indemnities on
Share Sales. 2nd Edition suggests that either of two approaches may be adopted. "The more
extreme is to provide that each warrantor is liable only for an appropriate portion of any
claim--normally being the proportion which he receives of the total purchase price. A more
modest alternative would to be to provide that the total liability of each warrantor has a ceiling,
which would usually be the amount of the sale proceeds which he actually receives. ,,93
I. WAIVER
Sample Clause:
No consent or waiver expressed or implied by either Party in respect of anybreach or default by the other in the performance by such other of itsobligations under this Agreement shall be deemed or construed to be aconsent to or waiver of any other breach or default.
The purpose of a waiver clause is to allow one party to the agreement to waive or give a grace
period for any non-compliance by the other party, without giving rise to the potential defence that
the waiver was absolute, or applied to other terms of the agreement. It is useful for both
long-term and short-term agreements, since a waiver may arise under any type of agreement.
Chitty's definition of waiver is where "one party voluntarily accedes to a request by the other that
he should not insist on the precise mode ofperformance fixed by the contract, the court will hold
that he has waived his right to insist that the contract be performed in this respect according to its
original tenor. ,,94 w.J. Alan & Co. v. El Nasr Export & Import Co. cites the principle of waiver
from Central London Property Trust Ltd. v. High Trees House Ltd that if one party by his
conduct, leads another to believe that the strict rights arising under the contract will not be
insisted on, intending that the other should act on that belief and he does act on it, then the first
party will not afterwards be allowed to insist on the strict legal rights when it would be
93
94
Sinclair, Warranties and Indemnities in Share Sales. 2nd Edjtion, p. 21Chitty, Vol. 1, p. 651 @ 1381
Page 32
inequitable for him to do SO.95 The Saskatchewan Court of Appeal held in Canadian Acceptance
Corp. Ltd. v. Fisher96 in order to constitute waiver n[t]wo essential pre-requisites are in general
necessary; there must be knowledge of the existence of the right or privilege relinquished and of
the possessor's right to enjoy it and there must be a clear intention of foregoing the exercise of
such right. n97
According to Chitty, a waiver may be oral or written or inferred from conduct even though the
provision waived is found in a contract required to be evidence by writing. However, the effect
of the waiver as held in Besseler Waechter Glover & Co. v. Derwent Coal Co. must be in writing
where n[i]f the parties agree to rescind their original contract and to substitute for it a new one,
the latter must be evidence by writing; so, too, if as a matter of contract the parties agree that the
terms of the original agreement shall be varied, the variation must be in writing. n98
A waiver IS distinguishable from a variation to a contract because WaIver provides no
consideration for the concession or the forbearance moving from the party to whom it is given.
Waiver is also n[d]istinguishable from estoppel inasmuch as estoppel may arise where there is no
intent to mislead; it depends upon what one himself intends to do; estoppel depends rather upon
what he caused his adversary to do; waiver involves the act and conduct of only one of the
parties; estoppel involves the conduct ofboth.n99
Finally, where the terms of a contract include a provision which has been inserted solely for the
benefit of one party, he or she may waive compliance with that provision and enforce the contract
as if the provision had been onutted. 1oo However, a party can neither waive a provision that has
been included for the benefit of both parties nor one where there is in reality no concluded
contract.
)
95
96
97
98
99
100
See WJ. Alan & Co. v. El Nasr Export & Import Co., [1972] 2 Q.B. 189 and Central London PropertyTrust Ltd v. High Trees House Ltd [1947] 1 K.B. 130.Canadian Acceptance Corp. Ltd v. Fisher (1957), 10 D.L.R. (2d) 247Canadian Acceptance Corp. Ltd v. Fisher, p. 254Chitty, pp. 652-653 @ 1382 and see Besseler Waechter Glover & Co. v. Derwent Coal
Co., [1938] 1 K.B. 408Crump v. McNeill (1919) 1 W.W.R. 52 (Alta. C.A.)Chitty, pp. 653-654 @ 1387-88
.. )
\/
Page 33
J. COUNTERPARTS
Sample Clause:
This Agreement may be executed in two or more counterparts, each of whichshall be deemed an original, but all of which together shall constituteinstrument.
More now than ever, contracts are made not between geographic neighbours but between
international corporations, individuals and groups. Counterparts are required so that not all
parties must be in the presence of each other in order to sign the contract or document.
Little if anything is written on the law regarding signature by counterpart. Presumably, however,
the clause is meant to eliminate any uncertainty as to formation of the contract, where the parties
have signed in counterpart. As stated by Fridman, "[t]he parties will not be bound unless they
intend to be bound, nor will they be bound until they intend to be bound."I01 A boilerplate clause
regarding signature in counterpart eliminates any uncertainty as to when and whether the parties
intended to be bound, in circumstances where both signatures do not appear on the same copy of
the agreement.
K. SIGNATURE OF PARTIES
1. Is it Necessary to Have a Seal?
There is often some confusion as to when parties should sign under seal. Chitty states that
contracts under seal such as deeds and bonds are instruments which are not merely in writing but
which are sealed by the party bound thereby and delivered by him to or for the benefit of the
person to whom the liability is incurred. In past times, this was the only way that validity could
be given to executory contracts. All deeds are documents under seal but not all documents under
seals are deeds. British Columbia's Continuing Legal Education Society in the 1991 Commercial
Agreements Drafting Course stated that because contracts and deeds are different legal
documents they will have different legal consequences which may lead to a determination by the
parties ifa seal is necessary.
101 Fridman @ p. 23
a)
Page 34
Contracts are binding upon acceptance of the offer. Deeds are not binding until thedeed has been delivered or there is evidence of an intention to be bound.
b) An offer can be revoked prior to acceptance unless it is supported by consideration.A deed cannot be revoked until the other party has had a reasonable time to accept it.
c) A contract is binding only on the parties. A deed made by one person may beenforced by anyone named in the deed as covenantor or covenantee. An indenture (adeed made by more than one party) cannot be enforced by a person unless he is nameor described in the deed as a party and it is executed in his name.
Furthermore, the Law Reform Commission of British Columbia in 1987 stated the difference
between a deed and a contract is "Ia] contract is a bargain. It involves offer and acceptance and
consideration flowing between the parties. A deed, on the other hand, does not necessarily reflect
a bargain and is enforceable in the absence of consideration. It is made by executing and
delivering it. Traditionally, execution has been by sealing. The common law does not appear to
have required a signature. These differences in the formation of a simple and a special obligation
result in fundamentally different consequences.,,102
The British Columbia Supreme Court in Morguard Trust Co. v. Heritage Horizons Ltd. held that
a "[s]eal on a document imports consideration and if a document is unsealed the party seeking to
rely on a contract must establish that there was valuable consideration."103 A simple contract not
under seal requires consideration to support it, and hence a gratuitous or voluntary promise or
payment cannot be enforced or retained against its maker. 104 Where a definite contract has not
been made, actual delivery of a document under seal is necessary to create a contract under
seal.105
The decision to have an individual sign under seal generally rests with whether or not there is
consideration for the contract. It is standard Canadian practice, however, to have corporations
sign all agreements under seal. This practice appears to have arisen from issues surrounding
authentication of the signature.
102
103
104
lOS
Continuing Legal Education, 3.1.06Morguard Trust Co. v. Heritage Horizons Ltd (1987),36 B.L.R. 16 at 33.C.E.D., Contracts, p. 305 @ 205McAlester Canada Oil Co. v. Petroleum Engineering Co. (1958), 25 W.W.R. 26 (Sask. C.A.)
Page 35
As stated by Gower,
"The law of agency is equally at the root of company law. Since thecompany is an artificial person it can only act through natural personswho are its agents or servants...The application of agency principles tocompanies meets the initial difficulty; since the company is an artificialperson how is it to appoint its agent? This problem does not arise inconnection with unincorporated societies for the question there is simplywhether the members (natural persons) have appointed other naturalpersons as their agents. But, with a corporation, it is the incorporatedcompany, not its members, which is the principal and somehow certainacts have to be regarded as those of the company itself if only in order toenable it to appoint agents. The early law of corporations seems to havetried to avoid this logical dilemma by a resort to formalism--the acts ofthe corporation were those which were authenticated by its common seal.This, however, merely begged the question without solving it, forsomeone had to affix the corporate seal and if it was affixed withoutlawful authority the corporation could not be bound."106
Section 23 of The Business Corporations Act of Saskatchewan largely eliminates this issue by
providing that "[a]n instrument or agreement executed on behalfof a corporation by a director, an
officer or an agent of the corporation is not invalid merely because a corporate seal is not affixed
thereto." Presumably, then, the only time when a corporation must use a seal is when the law of
contracts otherwise demands it; for example, upon execution ofa deed without consideration.
What appears to more important than the corporate seal is assurances that the person signing is
duly authorized to sign on behalf of the corporation. This issue is typically addressed in the
testimonium clause, so as to give rise to at least primafacie evidence that the person signing has
the ostensible authority to sign on behalfof the corporation. 107
\
)106
107
Gower, Modem Company Law, 1954 edition, p. 121As to the presumptions created by the testimonium clause, see, for example Re Red Deer Mill and ElevatorCo. [1907] W.L.R. 284 @286.
Page 36
A standard Canadian testimonium clause might be as follows:
IN WITNESS WHEREOF the parties have affixed their corporate seals dulyattested to by their proper officers as at the day and year first above written.
XYZLTD.
Per:---------(c.s.)Per:---------
In contrast, the American approach in a number of states appears to be to generally dispense with
any use of the corporate seal, and instead focus exclusively on the issue of signing authority. A
typical American testimonium clause might be as follows:
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to beexecuted by their respective officers thereunto duly authorized.
XYZLTD.
By:~~:--~ _Its President
2. Is it Necessary to Have a Witness?
Chitty's states that the signature must be affixed with the intention of authenticating the whole
document. Thus where one party or his agent merely adds his signature to the document as
witness of the signature of the other, the former is not bound by the signature. But the use of the
witness is not conclusive to show that the signature was added for the purpose of witnessing,
especially if the document did not require attestation. lOS Fridman states in The Law of Contract
that only the person who is being sued on the contract needs to have signed and even that a
"[p]laintiff may sue upon a contract required to be in writing by the Statute of Frauds even
thought he has not signed it providing that the defendant has signed the memorandum or contract
upon which he is sought to be charged."lo9
108
109Chitty's, p. 118 @ 243Fridman, The Law of Contract. p. 223 also see McGarry v. Richards, Akroyd & Gall Ltd., [1954] 2 D.L.R.367 at 377
Page 37
With respect to the weight of importance of a witness's signature, in Cedar Village Building
Materials Ltd v. Janary Construction Inc. I1O, which was an action between a shareholder and a
supplier for an outstanding debt, the shareholder argued that the agreement was void because the
witness's signature and a notation had been added without the shareholder's knowledge. The
court held that the IIwitness's signature was not needed to give the agreement legal effect and it
neither added nor detracted from the agreement. The notation was not an alteration, much less a
material alteration. II I I I
Similarly, there does not appear to be any requirement that witnessed signatures be accompanied
by an affidavit of execution (except as required by statutory law or by practice, such as for
documents submitted to the land titles office.) It offers some protection against the possibility of
a fraudulent signature, and its use can therefore be weighed against the possibility of a fraudulent .
signature being attached to the agreement. Where everyone is present at closing, the possibility
of one of the parties later arguing a fraudulent signature seems remote. Where the documents are
being sent away for signature, particularly where there is no other lawyer involved in the
transaction, then the possibility of arguments over the validity of the signature increases, making
the use of a witness and an affidavit ofexecution more advisable.
v. CONCLUSION
Boiler-plate clauses are often either overused or used inappropriately by drafters. Their
importance varies with the transaction; in all cases, however, their use requires some careful
consideration. Drafters should understand the importance of each clause, when it should be used,
and when it should be varied. These clauses are as deserving of attention as the other clauses in
the agreement, and should not be given short shrift by the drafter or by the reader.
\
110
IIICedar Village Building Materials Ltd v. Janary Construction Inc (1994),153 A.R. 310 (Master)Quotation taken from the Canadian Abridgment, 1990-1994 Supplement, XII.2 Effect of Alteration ofDocuments @ 570
"
j
