March 26, 2015
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March 23, 2015
Beware the Boilerplate: Multiple Contracts with Similar (But Not Identical) Clauses
In most commercial loan transactions, there will be multiple documents—for example, a note, a deed of trust and a guaranty. Many times, each of these documents contains provisions intended to have a uniform effect. These are often the boilerplate clauses copied and pasted from one deal to another, but they have critical importance in the context of litigation. They contain, for example, provisions about venue, choice-of-law, waiver of jury trial and merger/integration. As a general rule, contracts executed contemporaneously will be construed together. Jim Walter Homes, Inc. v. Schuenemann, 668 S.W.2d 324, 327 (Tex. 1984).
Creating ambiguity from three unambiguous documents.
A litigator faced with an unfavorable contract provision will often try to argue that it means something less burdensome to his client. One way to do so is to parse the language between contemporaneously executed documents, trying to ascribe meaning to relatively minor differences in the text. Take, for example, the following jury waiver provisions taken from the note, deed of trust and guaranty in a single transaction:
Note Jury Waiver
BORROWER . . . HEREBY WAIVE[S], TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY, IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THIS NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THIS NOTE, THIS NOTE, THE SECURITY INSTRUMENT AND THE OTHER LOAN DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES DIRECTORS OR AGENTS IN CONNECTION HEREWITH.
Deed of Trust Jury Waiver
EACH OF BORROWER AND LENDER WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER OR IN ANY COUNTERCLAIM ASSERTED BY LENDER AGAINST BORROWER, OR IN ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS SECURITY INSTRUMENT, THE NOTE, ANY OF THE OTHER LOAN DOCUMENTS OR THE DEBT.
Guaranty Jury Waiver
EACH OF GUARANTOR . . . HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY, AND AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, WAIVES ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS GUARANTY, THE GUARANTEED PRINCIPAL, ALL MATTERS CONTEMPLATED HEREBY AND ALL DOCUMENTS EXECUTED IN CONNECTION HEREWITH.
In this case, counsel for the guarantors argued that his clients had a right to jury trial on their counterclaims for fraud, because the waiver of jury trial in the guaranty made no specific reference to counterclaims, while the waivers in the note and the deed of trust did. In addition, he argued that the lack of “fullest extent allowed by law” language in the guaranty meant the waiver was intended to be limited. Obviously, the bank’s intention was for each document to waive the right to jury trial as to all claims in any way related to the transaction to the fullest extent allowed by law. Since the intention is the same across all documents, to the extent practicable, the language should be too.
After motions, briefs and an evidentiary hearing, the lender prevailed. The jury waiver was found to be enforceable and applicable to the guarantors’ counterclaims, and the defendants’ jury demand was stricken. Nevertheless, the lender incurred the costs of responding to the motion, preparing for hearing and arguing in court—costs that could have been lessened or avoided entirely had the documents been consistent.
Even if each document in a transaction is well-drafted in and of itself, it must also appear well-drafted when read with all the others. So put those boilerplate provisions side-by-side and make them consistent across all your deal documents. It will be time well spent.